Central Bank Governor hits out at governments ‘asking the impossible’ from the ECB

Addressing a banking conference in London, Josef Bonnici stressed that the Frankfurt-based ECB couldn't act as a lender of last resort for governments, and that its interventions to buy government bonds had necessarily been limited.

"This is where the adjustment has to be made, from the government side," Bonnici said. "Governments have to talk to governments."

His comments are the latest in a heated debate, between the central bank on one side and increasingly desperate governments on the other, over how far the ECB should go to damp down market speculation that countries such as Spain and Italy, ultimately, can't live with the discipline of staying in the euro.

Spanish Prime Minister Mariano Rajoy had written two weeks ago to the ECB urging it to resume its purchases of Spanish government bonds on the secondary market to help it avoid asking the euro zone for assistance. The government has now accepted it will need up to €100 billion in loans from the euro zone to recapitalize its banks. The ECB, meanwhile, hasn't bought bonds in more than three months.

Speaking earlier, Bonnici had stressed that markets can't and shouldn't expect an immediate solution to the problems created by a decade of inadequate governance in the euro zone.

"Past excesses will take time to correct," Bonnici said, pointing in the first instance to the repair of bank balance sheets that have been overextended by reckless lending.

"A period of deleveraging is inevitable," he added.

At the same time, he played up the measures currently being discussed to restore some sort of trust to the banking sector and stop the euro zone's financial market disintegrating along national lines.

These include steps toward the creation of a "banking union", such as a unified euro-zone system of deposit insurance, as well as a single resolution framework for failed banks, steps that Bonnici said were "long overdue".

Advocates argue that a banking union also needs a single supervisor for the euro-zone banking system, and German Chancellor Angela Merkel has called for the ECB to be given that role.

The European Commission proposed new legislation on bank resolution earlier this month. It is likely to be discussed at a summit of EU leaders at the end of this week.