A modest economic recovery is taking shape in the euro zone but its countries face two major challenges: reducing their deficits and reinforcing growth, European Central Bank Governing Council member Guy Quaden said.

Concerns over bloated public finances and low economic growth have led to a sharp rise in borrowing costs for some of the 16 euro zone countries, forcing governments to announce fiscal austerity steps that are likely to slow growth further.

The moment has arrived where we need to reduce public deficits in Belgium and in Europe not just to please markets and European institutions, but also to reassure households and companies, said Quaden, governor of Belgium's central bank.

China, India and Brazil were fuelling global growth, he added.

A double-dip recession was not the most credible scenario for the euro zone, according to the ECB's forecasts, Quaden said.

The most credible scenario for us is a recovery which remains relatively modest and uneven, he said.

There was no expectation of deflation in the euro zone, Quaden said.

Quaden, who turns 65 in August, hinted he might step down as governor of the Belgian central bank once a new Belgian government was formed, but not before then. (Reporting by Antonia van de Velde, editing by Dale Hudson)