Europe is about half way to acheiving the financial market reforms needed to parry a crisis like that seen in past years, European Central Bank president Jean-Claude Trichet said yesterday.

“I believe we are now about halfway through the comprehensive reforms that the crisis has called for,” Mr Trichet told a conference in Frankfurt.

“We have achieved a blueprint of more stringent bank regulations that includes more loss-absorbing capital, better risk coverage and limitations for undue leverage,” he added.

What remained to be done, according to the ECB head, is the implementation of planned reforms and finding a way to deal with threats posed by so-called systemically important financial institutions.

They are major banks and insurers which operate across borders and could provoke a meltdown of the financial system in the event of bankruptcy.

Another focus must be on the shadow banking sector of less well regulated entities like hedge funds and the “excessive influence of dominant players,” Mr Trichet said.

The best way to determine that the eurozone financial system is back on track is to see “whether it is providing appropriate financing to the real economy in a stable and sustainable way,” Mr Trichet said.

He spoke a day before European Union leaders gather for a summit to approve protective measures for the 17-nation eurozone, including a European Stability Mechanism to provide emergency funding for debt-laden governments.

The financial crisis and eurozone debt crisis are closely interwoven since banks and insurers are among the creditors that could suffer in the event of a sovereign default.

ING senior economist Carsten Brzeski said that while much had now been done on the political side, that fact that such a possibility has still not been addressed was a sign the EU had “set the course for an improved monetary union but not solved the current crisis.”