ECB's Trichet says no room for more debt

By James Mackenzie

PARIS (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.