*Massive injection of funds into economies was appropriate
*States need to bring public finances under control soon
*Says wide agreement clear signs of recovery seen by 2010.
(Adds quotes, details, background)
By James Mackenzie
PARIS, June 21 (Reuters) - European Central Bank President Jean-Claude Trichet warned on Sunday that governments which have borrowed billions to fight the economic crisis had no room for more debt and would have to start bringing down budget deficits.
"There is a moment where you can't spend anymore and you can't accumulate any more debt. I think we are at that moment," Trichet told Europe 1 radio.
He said the massive injection of funds into the economy through government stimulus packages had been the appropriate response to the economic crisis but he said states would have to bring public finances back under control as soon as possible.
"We are in exceptional circumstances at the moment," he said, adding that markets and consumers had to be convinced that governments would return to a normal budget situation.
He said there was very wide agreement that the economy would be showing clear signs of recovery by 2010 if the appropriate action is taken.
"In that hypothesis, we will have growth coming back again and so we have to begin the operation which consists of moving progressively towards balance," he said.
Trichet said the unprecedented actions taken by central banks to pump in unlimited amounts of credit had restored confidence to money markets that were virtually crippled by the shock of the Lehman Brothers collapse last year.
"As far as risk, risk premiums on money markets, the functioning of the money markets is concerned, we have returned to a situation I would qualify as 'pre-Lehmans'," he said.
REINFORCE SYSTEM
Trichet also repeated calls for an overhaul of the rules underpinning the global economy.
He said the global crisis had revealed the fragility of the financial system, which had encouraged short-term decisions and reinforced cyclical swings and he said it should be strengthened "in an extremely significant manner."
"We would not be forgiven for starting again with the same degree of fragility. That would be unforgivable," he said.
He said the recent disturbances in Iran, which underlined the geopolitical risks facing the world economy, offered a further reminder of the need for firmer foundations.
"We have to live with these risks and reinforce the solidity of the international economy, reinforce the solidity of international finance and so I think it's an additional argument for moving quickly," he said.
Trichet also welcomed the recent steps agreed by European Union leaders to tighten financial supervision. [ID:nnLJ284490]
"Some might say we should go much faster but I think one has to be realistic and practical. It's a very important step forward," he said.
Trichet said that as head of the ECB he would be able to lead a new European Systemic Risk Board that would monitor risks to stability but he declined to comment on whether he would actually chair the body, saying he would not anticipate a vote.
Britain and national banking and insurance regulators in the EU oppose the ECB chairing the new board, saying this would give it too much sway. The Brussels summit agreed to soften this by having the chair elected by the ECB's Governing Council. (Editing by Rupert Winchester)