By Boris Groendahl and Marc Jones
VIENNA, Dec 10 (Reuters) - The euro zone recession is expected to bottom out in the first quarter of next year but downside risks to economic output could last longer, European Central Bank Governing Council member Ewald Nowotny told Reuters.
It made no sense to discuss future rate cuts and their possible size or timing before it became clearer what impact last week's record 75 basis point reduction would have on developments, he said in an interview.
Nowotny, who also heads Austria's central bank, said Germany was not doing enough to counter the recession and this was adding to risks for the euro zone. He hoped the region's biggest economy would bolster its stimulus measures.
"Based on the forecasts we have made, the first quarter of 2009 will be the low end, both in the euro zone and in Austria," Nowotny said. "The downward risks are from my point of view clearly higher than the upward risks."
"The downward risks I see are mainly concerning the spillover of the financial crisis to the real economy and this is something where we are not sure whether more will come."
Nowotny said the main problem was still to get credit to companies flowing again. The ECB, he said, was not satisfied with the slow reaction in credit markets to central banks' liquidity and interest rate actions.
The ECB was now waiting to see the effect of its last rate cut to 2.5 percent, the biggest move in its history, before discussing further measures, Nowotny said, when asked about remarks made by fellow Council member Yves Mersch.
Mersch said last week the ECB would not repeat a rate move as big as last week's but return to steps of 25 basis points.
"It's really premature to say anything about when rate cuts could happen or which rate movements could happen or to talk about a magnitude," Nowotny said, reiterating ECB President Jean-Claude Trichet's remark that the ECB has no pre-commitment.
Nowotny said there had been no formal vote in the rate-setting Governing Council about last week's cut, but that there had been "a broad consensus" and he thought everybody could live with it.
The Council had not discussed what could be the lowest level for its benchmark rate. "We are now at 2.5 percent, so we still have room to manoeuvre," he said.
GERMANY "NOT ENERGETIC"
Nowotny chimed in with a chorus of critics of Germany's response to the financial and economic crisis.
Several times since October, Chancellor Angela Merkel's government has resisted plans for coordinated European measures to prop up banks and the economy drafted by France and the European Commission.
"In Germany up to now we don't really see very energetic measures to counter this downward trend, and from my point of view that is a downside risk," said Nowotny. Austria relies on Germany to take a third of its exports.
"I would hope Germany takes part in the (European Union's) approach in a more extensive way than is seen now," he added.
In general, the stimulus measures agreed across Europe were all good but governments should now start to transform them into real measures before talking about new ones, Nowotny said.
"The stimulus packages have not been realised to a large extent, so it is less a matter of volume. It's more a matter of velocity," he said. "We have many plans but very few real measures in place."
The current weakness of the euro against the dollar was helping euro zone exports to an extent, but Nowotny said this exchange rate development was not backed by fundamentals.
"If you look at the fundamentals they don't support this development," he said. "There is a number of specific effects like the unwinding of carry-trades or liquidity needs of American funds. But from an economic point of view I'm not sure how long-lasting this development is." (Reporting by Boris Groendahl; editing by David Stamp)