S&P says euro zone faces strong recession unless ECB acts

Workers maintain the huge Euro logo in front of the headquarters of the European Central Bank (ECB) in Frankfurt, December 6, 2011.

PARIS (Reuters) - The euro zone could face a deep recession next year unless the European Central Bank intervenes more decisively in markets but strong action would be required from an EU summit this week to allow it to do so, the chief economist of S&P Europe said.

Jean-Michel Six reiterated that the ratings agency, which placed 15 euro zone countries on watch for a potential downgrade this week pending the outcome of Friday's summit, saw a 40 percent change of a strong recession in the euro zone with economies shrinking next year even in regional powerhouse Germany.

By contrast, there was a 60 percent chance of a more shallow, technical recession starting in the fourth quarter of this year, with a weak rebound in the second quarter of 2012.

"The resolution of this enigma has to be political," Six said. "I hope that the summit will be decisive."

"The ECB is faced with a dilemma. It is clear that the bank is aware of ... the risk of a serious recession which faces the euro zone," Six said. "It cannot resolutely intervene in the capital markets until it has a concrete assurance from states that they will stick to the policies they have announced."

Six said the ECB was the only institution with the financial firepower to stem the contagion risk from the euro zone debt crisis, as the region's EFSF temporary bailout fund was too weak.

"This has to be really a last chance summit. There have to be strong and tangible measures taken. We don't have a particular opinion on what they should be but it is obvious that the euro zone club must work much more efficiently and more homogeneously," Six said.

Earlier this week, S&P placed 15 countries in the euro zone on a negative credit outlook and said this also implied a negative outlook for the EFSF bailout fund.

Six said this did not necessarily mean the EFSF was "dead", citing the example of the United States which had still been able to access capital markets at low interest rates despite a downgrade by S&P this year.

He declined to comment on the likelihood of a downgrade for any euro zone country.

(Reporting By Daniel Flynn; Editing by Ruth Pitchford)