* Foreign currency consumer loans exacerbated crisis
* Countries need help to develop local currency lending (Adds background and quotes)
By Carolyn Cohn
LONDON, May 13 (Reuters) - Emerging European economies should cut down on foreign currency consumer loans, one of the negative by-products of financial integration, the head of the European Bank for Reconstruction and Development said on Thursday.
Emerging Europe suffered more than other emerging markets during the global financial crisis, largely as a result of foreign currency loans that turned sour as currencies plummeted.
"While financial integration has done more good than harm, we cannot close our eyes to the harm it has done," EBRD president Thomas Mirow said in the text of a speech for delivery ahead of the bank's annual meeting in Zagreb, Croatia.
"Financial integration has encouraged some countries to take unacceptable risks. This must be stopped... Short-term unsecured consumer lending in foreign currency should be phased out."
The EBRD forecasts growth in the 29-country region of 3.3 percent this year following a 6.1 percent contraction last year. It will issue revised forecasts at the meeting.
The EBRD's board of governors is also expected at the meeting to approve plans to increase the bank's capital by 50 percent to 30 billion euros, enabling higher levels of investment.
Mirow said emerging European economies need to develop local currency markets and local currency lending with help from international lenders such as the EBRD.
"Even a relatively small country can mobilise term deposits in local currency and create a basic government debt market in local currency into which other agents -- chiefly banks -- can issue if they wish."
Mirow added that the recent euro zone debt crisis had flagged up potential risks for euro zone aspirants.
"We all know that entering a monetary union without full preparation may prove difficult down the road -- the current troubles of the euro are partly a reflection of that fact."
The EBRD, set up after the Cold War to help former communist countries in eastern Europe make the transition to market economies, invests mainly in the private sector. (Editing by Kevin Liffey)