(adds Bini Smaghi comment, background)
ROME, Jan 22 (Reuters) - European Central Bank Executive Board Member Lorenzo Bini Smaghi warned that it would be risky and unjustified at present for the ECB to take interest rates close to zero.
Bini Smaghi told the Wall Street Journal in an interview that rates should be taken "to very low levels" only if a central bank sees a substantial risk of deflation, something that he said was not the case for the euro zone.
"I think we should not go into a territory in which real interest rates are substantially negative, because we have seen that this creates huge distortions in the economy and it's very difficult to reverse these distortions," he said.
The interview was conducted on Wednesday and posted on the WSJ website on Thursday.
The central banker said the possibility of the ECB taking nominal rates to zero could not be dismissed, but that this could take place only under an "extreme situation," which it does not currently see.
The ECB cut its key refinancing rate by half a percentage point last week to 2.0 percent.
Bini Smaghi said there was a "substantially lower" risk of deflation in the euro zone than in the United States.
"We will see a sharp disinflation in the course of the next few months. But this is not deflation," he said. "I think that in the euro area right now we do not see this risk of deflation."
Pressed on how low the ECB was realistically likely to take interest rates as the economy stalls and inflation recedes, Bini Smaghi said, "I'm not stuck on a number, I would leave it conditional on inflation expectations."
He defined the extreme situation in which the ECB could not exclude cutting rates to zero as being one in which "inflation remains at very low or negative levels on a sustained basis and expectations shift in line with actual inflation, which is equivalent to a deflation."
He said the latest forecast by the European Commission that the euro zone economy would contract by 1.9 percent this year was realistic, "up to today," but warned "it is very difficult to predict what will happen."
The mid-point of the ECB's most recent staff forecasts, in December, projected the economy would contract by just 0.5 percent this year, and projected inflation to average 1.4 percent.
Bini Smaghi said he saw no risk of Europe's monetary union unravelling or that a euro zone country could default on its debt. He described as "quite irrational" the level of default risk implied for some countries by credit default swaps.
"It's clear that debt is going to go up in the next few years in several countries, but I think the commitment to bringing the debt down afterwards is also clear," he said.
"And if it is not clear enough for the markets, governments should restate it very strongly, as the German government has done for instance." (Reporting by Gavin Jones; Editing by Chizu Nomiyama)