UPDATE 2-EU sees 2010, 2011 recovery, sets fiscal clock ticking
* EU revises up 2010 growth forecast, sees 2011 acceleration
* Forecasts mean 2011 at the latest is time to cut deficits
* Euro zone inflation seen well below ECB target in '10, '11
* EU reiterates 400 bln euro 2009/10 euro loan loss estimate
(Recasts with detail, background)
BRUSSELS, Nov 3 (Reuters) - Economic growth in the European Union will accelerate over the next two years, the European Commission said on Tuesday, setting the stage for the bloc's 27 member states to cut budget deficits from 2011 at the latest.
EU governments, keen to reassure investors and consumers that they would not let debt spiral out of control, have committed to reducing budget gaps over the next two years if the economy can grow without the support of public money.
In its forecasts, the EU's executive arm made clear the worst economic downturn since World War Two was now over, even though the economy could go through another "soft patch" in the first half of 2010. The 2011 deadline should therefore hold.
"With this forecast I will recommend to Ecofin (EU finance) ministers next week to declare or confirm that 2011 is the year when the EU and euro area start in aggregate terms this fiscal exit strategy," Economic and Monetary Affairs Commissioner Joaquin Almunia told a news conference.
The Commission forecast that the EU economy would expand by 0.7 percent in 2010 and 1.6 percent in 2011 after a contraction of 4.1 percent this year.
In the 16-country euro zone, it expects growth of 0.7 percent next year and 1.5 percent in 2011, after a 4.0 percent fall in 2009. This is a strong upward revision from its May forecast for the euro zone to contract by 0.1 percent in 2010.
Almunia said the economy was coming out of recession thanks to government and central bank support measures and urged that all the announced steps should be still implemented. He also said banks had to be repaired to make the recovery sustainable.
In its forecasts, the Commission quoted an estimate by the Committee of European Bank Supervisors (CEBS) from Oct 1 which said that future potential losses due to writedowns on loans and securities for euro area banks for 2009 and 2010 were in the range of some 200 to 400 billion euros.
"Without further repairing of balance sheets of many banks, credit flows will not be at normal levels and without normal credit flows we will not have a sustained recovery in our economy," Almunia said.
The forecasts compared with the European Central Bank's last forecast on Sept. 3 for euro zone GDP changes of between -4.4 and -3.8 percent this year and -0.5 percent to +0.9 percent in 2010. The ECB meets to review policy on Thursday. [ECB/INT] Continued...
