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Euro zone set for recovery in second-half of 2013: Draghi

European Central Bank President Mario Draghi (C) waves after a news conference after the Governing Council Meeting of the European Central B
European Central Bank President Mario Draghi (C) waves after a news conference after the Governing Council Meeting of the European Central B

PARIS (Reuters) - European Central Bank President Mario Draghi said on Friday that budgetary consolidation in the euro zone would entail a short-term economic impact but the currency bloc was on track for a recovery in the second half of 2013.

"We have not yet emerged from the crisis," Draghi told Europe 1 radio. "The recovery for most of the euro zone will certainly begin in the second half of 2013."

"It's true that budgetary consolidation entails a short-term contraction of economic activity, but this budgetary consolidation is inevitable," Draghi said, speaking through a translator.

Draghi, in Paris for a conference with top financial officials, said euro zone governments should push ahead quickly with implementing a banking union which must apply to all banks to avoid fragmenting the sector.

Berlin has said that unified banking supervision under the aegis of the ECB should apply only to the bloc's largest banks.

To achieve deeper integration, member states must accept ceding more sovereignty while pursuing structural reforms to reduce rigidity in the service and labor markets, notably in France and Italy, Draghi added.

Ratings agency Standard & Poor's stripped six euro zone states of their 'AAA' credit rating in January, and Moody's downgraded France's rating by one notch this month to Aa1.

Draghi said that while the downgrades did not have an immediate impact on borrowing costs, they were a signal to governments which must be taken seriously.

(Reporting By Nicholas Vinocur; Editing by Daniel Flynn)

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