Franco-Belgian bank Dexia may have to be recapitalised quickly if financial market conditions worsen, Belgium's central bank governor Luc Coene told a newspaper in an interview extract published today.

The troubled lender became the first victim of the euro zone debt crisis when it was rescued last year by Belgium, France and Luxembourg as its strategy of borrowing short term and lending out long term came unstuck.

Over the past few months, the euro zone debt crisis has intensified, pushing up borrowing costs and stifling growth in the currency region, with overall output expected to have declined quarterly by 0.2 per cent in the second quarter, according to 55 economists polled by Reuters.

In June, Belgium, France and Luxembourg agreed to increase their aid to Dexia, a lender to municipalities, by raising their guarantees to €55 billion from €45 billion originally provided to cover Dexia's funding.

"Dexia is extremely vulnerable to all movements in financial markets," Mr Coene, who also sits on the European Central Bank's governing council, told Belgian newspaper L'Echo in a excerpt from an interview published on its website.

"If market conditions do not allow Dexia to reduce its losses, it will definitely need to be recapitalised - and relatively quickly."

According to Belgian lawmakers, Mr Coene told a parliamentary committee in April that the bank may need fresh capital at some point, but was not in urgent need of funds to stay afloat.

Reuters