The eurozone crisis is not over, France’s reforms are slipping and the Bundesbank has set aside billions in new provisions against what it sees as risky European Central Bank moves, Germany’s Central Bank said yesterday.

Only some of the confidence lost as a result of the crisis has been recovered so far

Presenting Bundesbank 2012 results that showed a sharp increase in its risk provisions, the German Central Bank’s chief, Jens Weidmann, urged governments to tackle the roots of their troubles with reforms.

Weidmann, a member of the ECB’s Governing Council, opposed the bank’s yet-to-be-used bond-buy plan agreed last September and believes eurozone governments must shape up their economies to exit the crisis rather than looking to the ECB for help.

“The crisis is not over despite the recent calm on financial markets,” Weidmann told a news conference.

There was uncertainty about the reform course in Italy and Cyprus, he said, adding: “The reform course in France seems to have floundered.”

The ECB’s other German policymaker, Joerg Asmussen, late last month urged France to take “concrete and measurable” steps to bring down its budget deficit, telling Reuters Paris faced a test of its credibility.

The Bundesbank is concerned about risks the ECB has taken on to help banks through the crisis, for example by accepting lower-rated assets in return for cash, exposing it to larger losses if a bank fails to repay.

Wiedmann also expressed concerned that a debt deal struck last month between the ECB and Ireland over ailed Anglo Irish Bank showed the ease with which the bank can fall into the “clutches” of fiscal policy – and area the Bundesbank does not wish it to go.

The Bundesbank said it increased its risk buffers by €6.7 billion to €14.4 billion.

Germany, Europe’s economic powerhouse expanded robustly during the first two years of the eurozone crisis but growth slowed last year and the economy shrank 0.6 per cent in the fourth quarter.

Most economists still see the country escaping a recession, defined as two consecutive quarters of contraction, by growing weakly in the first quarter before regaining momentum. German growth is crucial to underpinning the eurozone economy.

“The German economy is structurally in good shape,” he said, though confidence had been hit by the eurozone debt crisis, which posed the biggest risk to a recovery.

“Only some of the confidence lost as a result of the crisis has been recovered so far,” Weidmann said in a statement accompanying his news conference.

He nonetheless expected growth to strengthen as the year progresses, assuming there are no further shocks to confidence.

The German economy was still in good shape, Weidmann added. Germans’ concerns about inflation should be taken seriously, he said, but there was no reason to stir up fears of inflation.

“In the short term, we in the euro area have, if anything, declining inflation risks,” Weidmann said, adding that in the medium-term it was important to leave no doubt about the ‘stability orientation’ of ECB monetary policy.

The ECB discussed cutting interest rates last week, but decided to keep them on hold, citing positive economic survey indicators, which in turn suggest it is ready to keep rates at 0.75 per cent barring the economy taking another turn for the worse. Turning to eurozone’s crisis-fighting efforts, Weidmann dismissed speculation about the ECB leaving the lending “troika” with the European Union and International Monetary Fund.

Two German newspapers said last week there were growing doubts within the ECB about its participation in the group

The conservative Die Welt and liberal Sueddeutsche Zeitung said some ECB members were concerned that participation in eurozone rescue efforts could create a conflict of interest for the ECB and compromise its independence.

The ECB has denied the reports as unfounded.

“The question (of the ECB leaving the troika) does not arise at the moment,” Weidmann said, though he added that the Central Bank’s participation in the group was not part of its core mandate, which is to deliver price stability.

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