Josef Bonnici warns Spain over aid

"It is probably wise for them to explore this route and not wait until they are tested in the markets, perhaps," Malta's Central Bank Governor and ECB Council member Josef Bonnici said in an interview with The Wall Street Journal during annual meetings of the International Monetary Fund held in Tokyo last weekend.

Bonnici said that "the conditions have become a bit more benign so the sense of urgency is perhaps seen as being less than before."

Last month, the ECB announced a new program to purchase potentially unlimited amounts of government bonds of Spain and other vulnerable countries. However, the ECB said governments must first seek assistance from bailout funds and agree to conditions on economic reforms and budget-deficit reduction.  Spain has so far resisted pressure to seek aid from its European peers.

Bonnici also signaled that Greece may need more time to meet its debt-reduction targets provided it follows through on commitments to reduce its budget deficit and reform its economy.

His position largely backs that of the IMF, which has responded favorably to a request from Greece for an extra two years to meet its deficit goals. If Greece gets an extension, its European creditors would have to come up with a way to finance its cost, which could run up to €20 billion.

"There will be difficulties. It may be that Greece will need more time to achieve a more sustainable position," Bonnici said.

"Then that leaves the problem of the debt burden. This needs to be taken care of over a period of time," he said.

Bonnici downplayed the prospect of additional ECB interest rate reductions as a means to kick start the bloc's flagging economy. The ECB lowered its key policy rate in July to 0.75%, a record low. Additional cuts may provide some relief, especially in Spain where mortgages and other private-sector loans are tied to short-term interest rates.

"Reducing (ECB rates) further obviously may help but it's so low that the impact is unlikely to be that dramatic," Bonnici said.

The euro-zone economy should find its footing soon as Spain and Italy continue on the reform path, he said. A lower value of the euro against other major currencies also provides some boost to exports, particularly in southern Europe.