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Delaying savings will only make problem worse: ECB's Praet

European Central Bank Executive Board member Peter Praet gives a speech during a meeting organised by the Grand Conferences Catholiques in B
European Central Bank Executive Board member Peter Praet gives a speech during a meeting organised by the Grand Conferences Catholiques in B

BRUSSELS (Reuters) - Savings required to bring euro zone budgets under control cannot be put off for long, European Central Bank Executive Board member Peter Praet said in an interview in two Belgian newspapers.

Economists such as Nobel prize-winning Paul Krugman and London School of Economics professor Paul De Grauwe have said austerity measures in southern euro zone countries are simply driving them into a downward spiral of recession and debt.

Praet, in an interview published on Saturday in Dutch-language De Standaard and French-language Le Soir, said one should be careful about thinking this way.

"You can have a little delay. But you will not solve the problem that way. Quite the contrary, a delay will only make your debt mountain bigger. And it needs to stay manageable," Praet said.

Praet told the newspapers that if there were signs of economic recovery soon then necessary reforms and savings could not be put off for a year.

"I hear far too much policymakers saying: wait a little, give me more time. That can affect the credibility of a country. The debts will not miraculously disappear," he said.

He said savings were not a 'dogma' for the European Central Bank. What was important, he said, was the impact of savings measures, which should be combined with structural reforms.

Praet said he expected the euro zone to have contracted in the first quarter of 2013. The recession overall was not deep, although the difference between countries was sharp.

Praet also said he was pre-occupied with two chief concerns.

Consumers were concerned that their income over the long term would fall and were cutting spending, which was making the problem worse.

His second concern was that banks were receiving cheap money, such as from the European Central Bank, but were not passing this on as credit to companies.

"Big multinationals do not draw little of this. They can get financing directly from the market by issuing corporate debt. But for the many small and medium-sized firms this is a problem," he said.

(Reporting By Philip Blenkinsop; editing by James Jukwey)

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