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By Noah Barkin
BERLIN, Aug 19 (Reuters) - A nascent economic recovery in Germany is largely attributable to government stimulus measures and loose monetary policy and may not yet be sustainable, Bundesbank chief Axel Weber told German weekly Die Zeit.
A surprise 0.3 percent rise in German gross domestic product (GDP) in the second quarter and a sharp increase in sentiment indicators have boosted optimism about the outlook for Europe's largest economy.
But Weber, who is also a member of the European Central Bank's governing council, said he was not convinced Germany and the broader European economy were out of the woods yet.
"The recovery we are seeing right now, is to a great extent due to public sector measures -- the loose monetary policy, help for the banking sector and the stimulus programmes," Weber told the newspaper in comments provided on Wednesday.
"I am not convinced that the recovery is sustainable yet and that the economy is capable of carrying itself," he added, when asked about Germany.
He said the low point in the German jobs market was unlikely to be reached before the end of 2010 or early 2011 and warned that the danger of a temporary reversal in the economic recovery remained high.
"It is too early to rein in the measures to support the economy. The stimulus programmes worked and we were able to limit the impact of the crisis," he said.
"But the economy is not standing on its own feet yet. And the financial markets are still dependent on help from the central banks."
Weber said there was a risk that growth would be weaker over the coming decade than it had been in the past and predicted that the German economy may not return to pre-crisis levels until 2013.
With Germany facing a federal election on Sept. 27, Weber said the top priority for the next government must be to reduce structural deficits and move towards a balanced budget -- mainly through tough cuts in spending.
But he cautioned that the process of consolidation probably could not start before 2011, once corporate investment had picked up, a sustainable recovery was under way and the low point in the labour market had been reached.
Both Chancellor Angela Merkel's conservatives and the Free Democrats (FDP), with whom they hope to form a coalition after the election, are advocating tax cuts in the next legislative period, but Weber said this would be possible only if substantial cuts in government spending came first.
He also cautioned that the window for introducing comprehensive new regulation of financial markets was closing and urged G20 leaders, who will meet in Pittsburgh next month to discuss reform of global financial rules, to push through tighter standards for banks.
"A consequence of these measures is that the profitability of the banking business will be lower than it was in the years before the financial crisis, when we saw unusually high profits," Weber said.
"In addition, it is likely that the optimal bank balance sheet will be much smaller in the future than it was in the past. Size will no longer be the advantage it once was."
(Editing by Stephen Nisbet)