FRANKFURT Feb 18 The German economy should grow
in the first quarter and pick up pace later this year but
increased optimism on financial markets should not conceal the
need for reforms elsewhere in the euro zone, the Bundesbank said
In its February monthly report, the German national central
bank noted that the "euro appreciated sharply" over the last
month "particularly so against the yen".
The Group of 20 nations declared on Saturday there would be
no currency war and Japan's expansive policies, which have
driven down the yen, escaped direct criticism in a statement
thrashed out in Moscow by G20 policymakers.
Turning to Germany's economic outlook, the Bundesbank said
it expected an increase in economic output in the first quarter.
"There are signs that economic activity will gradually pick
up pace in the remainder of the year, although the external
environment should not be expected to kick-start a very strong
surge in demand," it added in the report.
The Bundesbank took aim at a deal agreed earlier this month
to ease the burden of Ireland's bank debts.
Under the deal, Ireland won European Central Bank approval
to stretch out the cost of bailing out Anglo Irish Bank, slicing
billions off the country's borrowing needs and cutting its
"This approach underlines the increasingly close and
problematic ties between monetary and fiscal policy in the
European monetary union," the Bundesbank said in the report.
"Responsibility for providing any assistance to individual
member states in servicing their sovereign debts should lie with
the European Stability Mechanism (ESM), which was established
for this purpose."
Turning to monetary policy, the Bundesbank said the ECB
Governing Council "continues to believe that inflation will fall
below the 2 percent mark in the next few months and will stay at
a level compatible with price stability over the policy-relevant
The ECB's yet-to-be-used bond-purchase plan - dubbed the
Outright Monetary Transactions (OMT) programme - had helped
boost financial market prices, the Bundesbank said.
"However, the current relaxation in the financial markets
should not conceal the fact that substantial structural
adjustments are still needed in many countries," it added.
Earlier, Bundesbank board member Andreas Dombret said the
ECB must ensure that its crisis-fighting measures do not distort
financial markets and give rise to new crises.