ECB's Trichet says must avoid another lost decade

JACKSON HOLE, Wyoming (Reuters) - Governments and central banks must ensure that the transition from very high debt levels takes place in an orderly fashion, European Central Bank President Jean-Claude Trichet said on Friday.

Governments and monetary authorities, which stepped in to cushion the economic fall and prevent a collapse of the global banking system during the financial crisis of 2007-2009, now must find a way to reduce their debts without compromising economic growth, a delicate balancing act.

"The primary macroeconomic challenge for the next 10 years is to ensure that they do not turn into another 'lost decade,'" Trichet said in speech at the U.S. Federal Reserve's annual symposium at Jackson Hole, Wyoming.

Though he indicated the Basel regulatory process might yield results in coming days, Trichet's speech was largely theoretical, as he avoided any direct references to current monetary policy ahead of next week's meeting of the ECB.

In the run-up to the 2007-2009 financial crisis, both businesses and individuals took on what would eventually prove to be unsustainable levels of credit, Trichet said.

As that bubble popped, much of that burden was transferred to the public sector and central banks. Official interest rates in Europe currently stand at 1 percent.

"The enormous challenge for policy-makers in the advanced economies is thus to set in motion this mutually reinforcing positive scenario of deleveraging and strong and sustainable growth."

Trichet, who said the Basel regulatory process might yield concrete results in coming days, said policy-makers should try hard to act more preemptively in the future, however difficult it may be to foresee an oncoming crisis.

Trichet was speaking at a time when concerns about Europe's economy, while still prevalent in the markets, had abated significantly from the spring, when fears about highly-indebted countries like Greece, Spain and Portugal sent financial markets into a tailspin.

(Editing by Leslie Adler)