PARIS, April 11 (Reuters) - A recovery in euro zone financial markets remains fragile but the negative market reaction towards Spain is not justified by the reform efforts being made by its government, ECB Executive Board member Benoit Coeure said on Wednesday.
“We are seeing today growing signs of normalisation on a whole group of market segments ... but the situation in recent days shows that this normalisation remains fragile,” Coeure told a conference in Paris.
Referring to Spain, where sovereign debt yields have spiked amid concerns over the government’s ability to cut its deficit, Coeure said: “What is happening at the moment in the market does not reflect the fundamentals.”
“We have an instrument for intervention, the SMP, which has not been used recently but which exists.”
Coeure said that the ECB’s three-year liquidity operations (LTRO) in December and February had helped normalise market conditions, which banks and governments should take advantage of to press ahead with reform.
He said that, by central bank definitions, there was some 800 billion euros of excess liquidity in the euro sytem, but that weak levels of aggregate demand meant this did not represent an inflationary risk in the short term.