* ECB's Stark sees very moderate inflation into 2011
* Warns of support measures' side effects
* Says ECB will gradually and progressively withdraw support
* Orphanides says danger of inflation too low for too long (Adds quotes, details, background, wraps separate)
By Arno Schuetze
HILDESHEIM, Germany, Dec 21 (Reuters) - Inflation in the euro zone is expected to remain low for the next two years, and there are neither inflation nor deflation risks, European Central Bank Executive Board member Juergen Stark said on Monday.
"Inflation rate will stay at very moderate level in 2010 and into 2011," Stark said in a speech at a University of Hildesheim and Volksbank event in Hildesheim, northern Germany. "At the moment, there are neither inflation nor deflation risks."
The ECB targets inflation of below, but close to 2 percent, but inflation has been well below that level for several months and ECB President Jean-Claude Trichet has said inflation pressures remain subdued in the medium-term.
ECB staff projections show inflation was expected to undershoot the 16-country bloc central bank's target for 2009 - 2011. For table of forecasts, please double-click on [ID:nGEE5B20H1]
Earlier on Monday, ECB Governing Council member Athanasios Orphanides was quoted as saying monetary policy needs to remain accommodative enough to avoid the risk of inflation undershooting for a long time.
"We need to watch this very carefully because in my view it would be problematic if this deviation of inflation from our definition of price stability became embedded in expectations," Orphanides told daily Financial Times.
"Indeed such a deviation would risk de-anchoring inflation expectations on the downside."
When asked how to prevent low inflation expectations from becoming embedded, he was quoted as saying monetary policy should remain sufficiently accommodative for as long as necessary. [ID:nLDE5BK1KI]
GRADUAL EXIT
Stark said he expected the euro zone to see very gradual economic recovery next year and that it would take several years before the pre-crisis level would be reached.
Stark also said banks should not become addicted to central bank money and added the ECB would remove its non-traditional measures gradually and progressively.
"We have already had the last 12-month refinancing operation," Stark said. "We will withdraw measures gradually and progressively."
The longer the extraordinary support remains in place, the worse their side effects would become, he warned.
Banks could become too dependent on central bank financing and the longer the central bank helps banks, the smaller their incentive to clean up balance sheets is, Stark said.
Extra liquidity may also lead to new risk-taking, Stark said, and added not all financial market participants had learned their lessons.
But he said the ECB was in an advantageous position when support would be removed, as nonconventional measures had been designed with ease of exit in mind.
After the start of the financial crisis, the ECB has cut its interest rates to 1 percent, offered banks unlimited liquidity at a fixed rate, extended the duration of its refinancing operations and started a 60-billion-euro covered bond purchase programme. (Reporting by Arno Schuetze, writing by Sakari Suoninen; Editing by Theodore d'Afflisio)