* Says time for more expansive fiscal policy in euro zone

* Says Italy must hurry on reforms

(Adds Visco comments on euro zone fiscal policy)

By Valentina Za and Silvia Aloisi

CERNOBBIO, Italy, Sept 7 (Reuters) - The European Central Bank should be ready to take further measures to guarantee monetary stability if needed, Ignazio Visco, the governor of the Bank of Italy and a member of the ECB Governing Council said in a newspaper interview on Sunday.

Visco also called for the European Commission to allow more expansive fiscal policy in the euro zone, where economic growth ground to a halt in the second quarter.

The ECB on Thursday unexpectedly cut interest rates to near zero and pledged to buy asset-backed securities to fight low inflation and support economic growth in the euro zone. It also resumed its covered-bond buying programme. ID:nL5N0R54DE

"As the launch of a new programme of covered bond purchases shows, we must not hesitate to take other actions, if they are necessary to guarantee monetary stability," Visco told Italian daily La Repubblica.

ECB President Mario Draghi said some members of the bank's governing council were in favour of doing more, and that so-called quantitative easing - or buying assets such as government bonds - had been discussed.

In a landmark speech last month that signalled a shift in the ECB's stance away from austerity and towards reviving economic growth, Draghi said there was room for fiscal policies to support demand in the euro zone alongside the ECB's monetary policy.

Visco was more explicit, and suggested the EU Commission look at overall fiscal policy in the euro zone instead of focusing on the budget deficits of individual countries.

"It's in our mutual interest, without losing sight of the need to be vigilant about the long-term sustainability of each country's public accounts, that the orientation of fiscal policy for the entire euro area becomes more expansive during this phase," he said.

"Precisely because there is no common budget (for the euro zone), the European Commission could take into account the overall situation of the euro area in its analysis of national budget policies."

European Union budget rules require countries to keep their deficits at or below 3 percent of output, and that is tying the hands of some of the core euro zone countries, including France and Italy, which need to take steps to stimulate growth.

Italy, which holds the six-month rotating presidency of the EU, slid into its third recession in six years during the first half of 2014 and Prime Minister Matteo Renzi has been pushing for a more growth-focused fiscal stance since taking office about seven months ago.

"IMPORTANT STEPS"

Speaking at a business forum in Cernobbio, near Milan, Italian Economy Minister Pier Carlo Padoan said the ECB had taken "very important and useful steps which go in the right direction" and said it was up to governments to follow through with structural reforms to support growth.

With the second-highest debt in Europe after Greece as a percentage of gross domestic product, and a budget deficit-to-GDP ratio that came in right at the EU's 3 percent ceiling last year, Italy wants more flexibility in spending in exchange for overhauling the public administration, labour market and schools.

But the 39-year-old Renzi's promised reforms have yet to be passed in parliament, and the prime minister, while still popular according to polls, is facing increasing criticism that he is not following through. Visco said Italy must hurry.

When asked how much time the euro zone's third-biggest economy had to make reforms, Visco replied: "Not much."

Padoan said the government was committed to defend Italy's creditworthiness also by meeting the 3 percent threshold, which he said was an important signal to markets and not just a symbolic number.

He said the government was strongly committed to its privatisation plans and to extracting more value from state-owned assets. But he said there were no shortcuts to lowering Italy's 2 trillion-euro public debt, calling reports that it could be slashed through a fire sale of state assets "fantasy."

(Additional reporting by Luca Trogni and Elvira Pollina in Cernobbio, Steve Scherer in Rome; Editing by Alison Williams) ((silvia.aloisi@thomsonreuters.com; +39 02 6612 9723; Reuters Messaging: silvia.aloisi.thomsonreuters.com@reuters.net))

Keywords: ECB VISCO/