* In Davos, Merkel says not unconcerned about Japan
* German leader says central banks must set limits
* Youth unemployment Europe's "biggest burden"
By Noah Barkin and Annika Breidthardt
Jan 24 German Chancellor Angela Merkel waded
into a burgeoning debate about currency wars on Thursday,
singling out Japan as a source of concern following recent moves
by its central bank to quicken the pace of money-printing.
Central bankers in advanced countries, notably Japan and the
United States, have been pursuing aggressive action to reflate
their economies. This has the effect of weakening their
"I am not completely without worry," Merkel said at the
World Economic Forum in Davos, when asked whether currency
manipulation risked distorting competition.
"I don't want to say that I look towards Japan completely
without concern at the moment," she added. "It is known that in
Germany we are of the opinion that central banks are not there
to clean up political bad decisions and a lack of
The Bank of Japan is under pressure from the country's new
Prime Minister Shinzo Abe to take bolder action to overcome
deflation and lift the economy out of recession. In recent
months it has expanded its asset-buying programme and this week
it doubled its inflation target to 2 percent.
The head of Germany's Bundesbank joined other central
bankers this week in warning about the risk of competitive
devaluations - countries encouraging their currencies to weaken
in order to boost the attractiveness of home-grown products.
Jaime Caruana, general manager of the Bank for International
Settlements, told Reuters Insider television in a Davos
interview that central banks were coming under "excessive
pressure" to promote growth and weaken currencies.
Merkel said it was important for central banks to set
limits, as she said the European Central Bank had done in
announcing its own bond-buying programme last year that is
conditional on economic reforms.
"Central banks, too, will not be able to solve structural
problems that stem from political decisions. They can build
bridges," Merkel said.
"The European Central Bank has contributed to this but the
ECB has also made clear, only those who implement structural
reforms and accept conditionality, can hope for our support."
She said politicians in Europe now had an obligation to act,
as the ECB had bought them time.
The 58-year-old German leader appeared to reject suggestions
by other officials at Davos that Europe's austerity drive had
gone far enough. She said politicians sometimes needed the
pressure of a crisis to push through difficult reforms.
"My conclusion is therefore that if Europe is in a difficult
situation today, we must implement the structural reforms today
so we can live better tomorrow."
Yet she also referred to youth unemployment as Europe's
"biggest burden" and said steps may be necessary to prevent
political and social instability from breaking out.
"Our main task must be to present perspectives and possibly
even to provide bridging measures until they lead to a decline
in unemployment. That's what the near future is about," Merkel