FRANKFURT (Reuters) - Deutsche Bank's <DBKGn.DE> chief economist urged the European Union to set up a 150 billion euro ($165.39 billion) rescue fund to recapitalize European banks, German newspaper Die Welt reported on Monday.

"We won't be able to avoid setting up a bigger program to recapitalize banks," David Folkerts-Landau told the daily in an interview.

"European banks can be recapitalized with 150 billion euros," he added.

European banks were threatened by a slow, long-term downward spiral and faced with two trillion euros in non-performing loans, Folkerts-Landau said, adding that the European Central Bank's negative deposit rates and low share prices made it hard for banks to acquire capital on their own.

"We are witnessing one crisis after another and I can, by no stretch of the imagination, make out growth prospects anywhere," Folkerts-Landau said.

Folkerts-Landau added that particular attention had to be paid to Italy, where banks had 350 billion euros in bad loans and debt ratios were on the rise.

"Likely, this will only be the lower limit," he said.

New EU banking guidelines allowed for a degree of flexibility and states are allowed to bail out banks for a limited time under specific circumstances. Initially, however, creditors are liable for eight percent of the payment obligations before the state can intervene.

($1 = 0.9069 euros)

(Reporting by Tina Bellon; editing by Adrian Croft)