By Giada Zampano And Giovanni Legorano 

ROME--Bank of Italy Governor Ignazio Visco called on Friday for urgent action to sustain public investments in the eurozone, highlighting the 18-member bloc is facing tangible risks of deflation and low growth, leading to volatility on the European financial markets.

Mr. Visco, who is also a member of the European Central Bank's governing council, said macroeconomic conditions in the euro area are weakening again, stressing that the reasons for the bloc's low growth are "structural."

"Measures aimed at boosting the potential of growth are indispensable," he said in a speech at a banking conference in the capital. "In some cases they have already been adopted; they need to be reinforced."

Mr. Visco also called for a more flexible interpretation of EU fiscal rules, especially those focused on debt reduction, saying they become more onerous in a scenario of low inflation and risk being counterproductive. "The rules offer margins to conciliate fiscal discipline and growth support," he said.

Of late, Italy has been leading the drive to shift the focus of EU economic policies from austerity to investment and growth, as part of a wider debate that is dividing members of the eurozone.

Mr. Visco also defended the role of the Bank of Italy in making the local banking system robust and ready to face the European regulators' assessment.

"The overall resistance of the system is the result of the supervisory action [of the Bank of Italy] in ensuring adequate provisions for bad loans," Mr. Visco said, adding banks have been also been particularly prudent in their 2013 balance sheets.

He added the Bank of Italy strongly encouraged all measures banks took this year to shore up their balance sheets. However, he conceded that Italian banks were "undeniably" late in preparing for the tests, having been particularly penalized by Italy's bad economic conditions. Unlike in other European countries, Italian banks received no significant state aid before the tests, Mr. Visco said. Italian banks under the European assessment raised in the market a total of EUR11 billion ($13.9 billion) this year to plug potential shortfalls.

Despite these actions, Banca Monte dei Paschi di Siena SpA and Banca Carige still need to find additional capital.

"The capital shortfalls [of these two banks] are largely the result of past episodes of bad management, which the Bank of Italy--together with the judicial system--helped unveil," Mr. Visco said.

He added local banks will need to keep on strengthening to adequately finance the economy.

Write to Giada Zampano at giada.zampano@wsj.com and Giovanni Legorano at giovanni.legorano@wsj.com