The risk of a massive economic decline has prompted calls for change in direction by the European Central Bank (ECB).
Professor Clemens Fuest, head of the IFO Institute, has said: “It is very clear that monetary policy is too expansionary for Germany by any rule you care to use, but it is also too expansionary even for the rest of eurozone.
“We are seeing a strong acceleration everywhere. We think the ECB should be cutting asset purchases to zero by April.”
However, the ECB has outlined it will cut bond purchases in half from €60bn to €30bn but stretch the programme until September 2018, and potentially beyond.
Professor Fuest added: “There is the danger of a real estate bubble in the bigger cities and it is not going to stop.
“The lesson of the past is that the longer this momentum goes on, the more dangerous it becomes, and I see a lot of dangers.”
Professor Richard Werner, a German economist from Southampton University, said: “We are going to have a massive misallocation of resources and a property bubble just like Japan in the late 1980s. The negative interest rate policy and bond purchases are disastrous.”
Reports of potential economic instability have come as a breakdown in German coalition talks has thrown Chancellor Angela Merkel’s future in doubt.
The leader of Germany’s socialist party and former President of the European Parliament Martin Schulz is under increasing pressure to resign over his refusal to engage in coalition talks.
Mr Schulz is now facing open revolt in his Social Democratic Party (SPD) as many of his MPs want to give a lifeline to Mrs Merkel and form a coalition with the Christian Democratic Union.
More than 30 MPs have spoken out against Mr Schulz’s position and have demanded he is more flexible and considers talks.
Mr Schulz has said that his party wants to stay in opposition rather than joining another coalition.
Mrs Merkel, who has been in power for 12 years, now serves only as caretaker chancellor after she failed to win a clear majority in the September elections.
The Social Democrats have now dropped their complete refusal to governing with Mrs Merkel’s conservatives.
General secretary, Hubertus Heil, said today: “The SPD is deeply convinced there should be discussions. The SPD will not refuse to talk.”