By Nigel Davies

MADRID, Aug 12 (Reuters) - Spain will need to make extra
budget cuts in 2011 and must not be over-optimistic about
economic growth, European Central Bank Executive Board member
Jose Manuel Gonzalez-Paramo was quoted on Thursday as saying.

"It is accepted by everyone, even the government, that in
2011 and in later years additional budgetary measures will be
necessary," Gonzalez-Paramo said in the second part of an
interview published on Thursday by agency Europa Press.

Spain has announced austerity measures worth 65 billion
euros in an attempt to cut its budget deficit to 3 percent of
gross domestic product in 2013 from 11.2 percent in 2009, and is
committed to taking further measures if needed.

Prime Minister Jose Luis Rodriguez Zapatero said this week
he hoped next year to revive some of the infrastructure projects
mothballed under the austerity drive should finances permit.
[ID:nLDE6791B6]

Analysts said any such spending would have to be paltry at
best given the government is only just starting to convince
financial markets it can stabilise its finances.

Economy Secretary Jose Manuel Campa said on Thursday that
the debt-reduction drive was paramount and pledged Spain would
take additional measures to ensure it meets its target of
cutting its public deficit to 6 percent in 2011 should forecasts
not be met.

"The objective of 6 percent for the deficit in 2011 is an
unconditional objective. If forecasts were not met in any way
then we would take additional measures to assure the 6 percent
objective was met," he said.

The key spread between Spanish ten-year bonds and euro zone
benchmark bonds has fallen from a peak of over 250 basis points
hit in July to around 159 bps as of Thursday, but could shoot
higher if Spain fails to convince it was meeting its deficit
objectives.

GROWTH DOUBTS

Many analysts doubt Spain can meet the growth forecasts that
underpin that plan and Gonzalez-Paramo came out against a rise
in taxes to reduce the budget deficit, suggesting that could
hurt an already unsteady recovery in growth.

He said investors must see a continued effort by Spain to
reduce its debt and carry on its reforms of financial and labour
markets even if financial markets have stabilised in recent
weeks and debt auctions had gone well.
Indeed, he said reforms in weaker euro zone countries were
necessary so they were better prepared for an eventual rise in
interest rates from the ECB. [ID:nLDE67B175]

Gonzalez-Paramo also urged the government not to be so
optimistic about its growth forecasts, which currently show
Spain growing by 1.3 percent in 2011 and 2.5 percent in 2012.

"In moments of uncertainty like now it is not advisable to
be over optimistic as it increases the risk of negative shocks
that can harm confidence in economic policy," he said.

Yet Campa said that so far the government's forecasts for
growth and inflation this year were largely correct. The
government forecasts the economy to grow in each quarter this
year after emerging from an 18-month long recession at the start
of the year.

In the first part of the interview released on Monday
Gonzalez-Paramo welcomed the results of European bank stress
tests, and said Spanish banks must recapitalise in order to get
credit flowing to the economy again. [ID:nLDE67810W]
(Reporting by Nigel Davies; editing by Mike Peacock)