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ECB's Trichet: EU policy, funds must be up to task

PARIS (Reuters) - Europe's reaction to the fiscal crisis and the stabilization fund set up to deal with it must be commensurate to the problems involved, European Central Bank President Jean-Claude Trichet said on Friday.

Europe's funds to bail out countries struggling in the fiscal crisis add up to 750 billion euros and analysts say that would likely begin to look stretched if Portugal and Spain were forced to follow Ireland and Greece in seeking rescues.

"It is extremely important that everything is commensurate to the dimension of the challenges," Trichet told journalists at the European American Press Club in Paris.

Trichet said that applied to governments' fiscal policies, structural reform and the "collegial collective action that we might have including through the stabilization fund."

Trichet also said the main lesson of the crisis was the need to strengthen governance, speaking as Spain renewed calls for closer integration of economic policy.

"From our point of view, the main lesson ... is obviously that it is necessary to reinforce the governance of the euro zone countries and of Europe in general," he said.

With the euro zone's current debt crisis hurting the euro's image, Spanish Economy Minister Elena Salgado said that if Europe is to have a single currency then it must also integrate economic policymaking.

"We have to improve economic governance in Europe. You cannot have in the long term a common currency without a common economic policy," Salgado told BBC television.

The ECB chief also said that all industrialized countries must strengthen management of their budgets, but noted that the euro zone's fiscal gap would be lower next year than in the United States or Japan.

In the face of persistent concerns about the debt crisis, he told French radio RTL earlier in an interview that the euro currency was not in crisis: "We have a currency that is credible."

Asked if austerity measures would push euro zone countries into recession, he said, "I don't think so" and urged strong monitoring of budget policies in the 16-nation bloc.

The ECB resisted pressure at a monthly policy-setting meeting on Thursday to commit to major bond-buying to contain the euro zone debt crisis but it did extend its liquidity safety net to support vulnerable euro zone banks.

"That's what is needed to keep giving our citizens, who are 330 million ..., price stability, which is our mandate," Trichet said in the radio interview.

Trichet also declined to comment on speculation about the possibility of Bundesbank President Axel Weber replacing him at the helm of the ECB next year when his term expires.

(Reporting by Daniel Flynn, Nick Vinocur and Leigh Thomas; editing by Patrick Graham)

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