* Cutting deficits and debt to remain main policy focus
* Euro zone economy recovery in line with ECB forecasts
(Wraps stories adds background, quotes)
ROME, Oct 14 (Reuters) - European Central Bank executive board member Lorenzo Bini Smaghi said on Thursday the global economic crisis would weigh on international growth for years but he said euro zone economies were recovering as expected.
In a speech in Rome, Bini Smaghi said cutting budget deficits and debt must be the main focus of economic policy and was the only way to generate economic growth in the longer term.
"The process of restoring public finances must remain the cardinal principle of economic policy and the basis for a profound restructuring of the functioning of economies to generate more growth," he said.
He said markets had confidence in the ECB's credibility and this had allowed the bank to respond to the economic crisis in a flexible and effective way.
"You have to be very rigorous in normal times in order to be extremely effective in a crisis," he told reporters at the margins of the conference organised by the Aspen institute in Rome.
He also said the euro zone economy was recovering in line with ECB forecasts despite some uncertainty and he said the outlook for price stability was balanced with no risk of either inflation or deflation.
"There is no risk of inflation, we don't see it, and there is no risk of deflation at all," he said.
Bini Smaghi also dismissed talk of a "currency war" between the world's big economic powers, saying officials from different countries were cooperating over the issue.
"That's not an appropriate word to describe the cooperation taking place," he said in response to a question about the "war" over the exchange rates between currencies like the dollar and the Chinese yuan.
"I think our concrete discussions show it is not appropriate to talk about war," he said.
In his speech to the conference, he said he saw two main risks in the coming years.
"The first risk is an illusion; the illusion that this crisis is cyclical rather than structural, that it will not have a long-term impact on the potential growth of our economies."
"The risk in this case is the illusion that traditional monetary and fiscal policy are able on their own to bring growth back to the levels preceding the crisis," he said.
"The risk here is to give rise to unsustainable policies which generate new imbalances that will explode sooner or later," he said. (Reporting by Gavin Jones; Editing by Ron Askew)