Germany facing 'muted' recovery

Germany faces 'bumpy' recovery

Germany's economy has stopped its "free fall" but any recovery will be "muted" and take a long time, the head of the country's central bank has said.

But Bundesbank chief Axel Weber told the BBC that the eventual phasing out of stimulus measures would see unemployment rise and consumption fall.

"It does not endanger the recovery but it makes it more protracted," he said.

The car scrappage scheme and workers being put on fewer hours have helped keep German jobless levels steady.

Along with France, Germany emerged from recession after its GDP grew by 0.3% between April and June.

"Recovery will be protracted and relatively muted but relatively positive," Mr Weber said.

"All we are talking about is recovery from a low level."

Bank bonuses

At the G20 meeting in Pittsburgh this week, world leaders will discuss when and how government stimulus packages should be withdrawn.

Mr Weber said that the European Central Bank's special measures to pump billions into the eurozone's financial system will be in place "for some time".

Also on the G20 agenda is the debate over whether banker bonuses should be capped.

Mr Weber said he favoured forcing banks to increase their levels of liquidity and capital reserves - which is to be proposed by the G20's Financial Stability Board, set up at the last meeting in London in April.

"Doing this will bring down the profitability of the banking system and, as all bonuses are defined from profit base, these measures will automatically, quite substantially, reduce the amount of profits to be distributed."