THE HAGUE (Dow Jones)--European Central Bank governing council member Klaas Knot on Wednesday said Spain is currently the main risk in the euro zone and he urged that country to speed up reforms to restore market confidence.
Spain's borrowing costs increased this week amid concerns about whether the country will be able to meet its deficit-reduction targets. Even after the Spanish government on Monday presented a package of EUR10 billion in new spending cuts, investors resumed their selling of Spanish stocks and bonds on Tuesday.
Knot, who spoke at a conference in The Hague, said the Spanish government failed to implement necessary reforms in the past months as the improved climate in financial markets took away some pressure.
While markets may have overreacted to Spain's problems this week, Knot said that "confidence has to be restored soon."
Knot, who is also the head of the Dutch central bank, stressed that he didn't want to speculate on whether Spain will need financial support. However, he noted that the country now poses the main risk in the currency area.
"Experience has taught me this may be different in one week. But I think that Spain is now the biggest problem," he said.
Knot reiterated that the ECB's Long-Term Refinancing Operation, or LTRO, which gave European Union banks cheap access to much-needed liquidity, provided no fundamental solution to the euro-zone debt crisis and only bought time.
"[The LTRO's] success will depend on how this time will be used," he said.
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