Speaking as chairman of the European Systemic Risk Board, created to avoid a repeat of the 2008 financial crisis, Trichet said the crisis was “systemic and must be tackled decisively.”
"The high interconnectedness in the EU financial system has led to a rapidly rising risk of significant contagion,” he told a European Parliament committee in his final appearance before retiring at the end of the month.
“It threatens financial stability in the EU as a whole and adversely impacts the real economy in Europe and beyond.”
Trichet’s stark warning came as the troika of lenders from the European Union, ECB and International Monetary Fund said Greece should receive its crucial next tranche of bailout aid next month to avoid bankruptcy.
The €8bn loan tranche should be paid in early November after approval by Eurozone finance ministers and the International Monetary Fund.
But they warned Greece had made only patchy progress in meeting the terms of a bailout agreed in May last year.
"It is essential that the authorities put more emphasis on structural reforms in the public sector and the economy more broadly," the troika said in a statement.
It said additional measures were likely to be needed to meet debt targets in 2013 and 2014 and a privatisation drive and structural reforms were falling short. Decisive implementation of existing plans should allow next year's debt goals to be met, it said.