German economy minister says liquidity not a cure-all

BERLIN, (Reuters) - Extra liquidity alone won't resolve the euro zone's debt problems, German Economy Minister Rainer Bruederle said on Thursday as financial markets' hopes grew of more action from the European Central Bank.

Bruederle warned that pumping too much money into the economy risked creating new bubbles.

The ECB is expected to say it will keep unlimited liquidity operations in place for longer when its monthly meeting ends on Thursday but investors are also hoping for at least a hint it will increase the value of government bonds it buys.

The bank is unlikely to announce mass new bond purchases, however, and Germany's representatives at the ECB have opposed the programme from the start.

"Permanently printing money is not the solution," Bruederle said. "The money presses must not fall into the hands of politicians."

The ECB will be under pressure to unveil new steps to stabilize the euro zone at the meeting as the currency bloc battles a crippling debt crisis that has stoked contagion fears in the United States and Asia. Germany struggled to sell its government debt on Wednesday and Portugal's borrowing costs soared in further signs an 85 billion euro ($110.7-billion) EU/IMF rescue of Ireland last weekend and public assurances from leaders that the euro will be defended at any cost have failed to impress investors.

Bruederle reiterated that the ECB should remain independent and not fold to pressure from politicians to print money, describing the last U.S. fiscal stimulus package as excessive.

"The Americans are permanently producing liquidity, he said. "I see a big danger that our American friends exaggerate."

Bruederle also said he thought there was a good chance that Portugal and Spain could avoid tapping the euro rescue facility.

Risk premiums on Spanish and Italian bonds have risen to euro lifetime highs this week and markets are discounting an eventual rescue of Portugal. While that would be manageable, assistance for its neighbour Spain would sorely test EU resources and raise deeper questions about the integrity of the 12-year-old currency area.

"I see good chances that both countries will manage without (the rescue fund)," Bruederle said, pointing to the enormous reform efforts in both countries.

He also said he believes the current levels of the euro rescue fund are sufficient.

"I think the rescue mechanism is sufficient," he said, adding that in a best-case scenario, Ireland won't need a single cent from Germany.

Bruederle said he did not believe speculation about a return to national currencies within the euro area, saying this option was "not realistic". He also said giving up the euro would weaken the European economy