The central bank's president Hans Tietmeyer told a news conference in the East German city of Magdeburg that transfer payments had to be gradually scaled down in coming years.
This could happen sooner if they were more heavily channeled into boosting the region's manufacturing base.
Transfer payments from west to east have totaled more than 150 billion marks ($105 billion) each year since unification in 1990. As a result, government borrowing has soared and the country has been lumbered with heavy tax increases and a swollen budget deficit which it is still battling to curb.
"The transfers must go much more strongly into investment," Tietmeyer said.
"We can't foresee exactly when East Germany will no longer need transfers but the more they are used for investment, the more the production potential will be accelerated," he added.
Much also depended on whether costs remained low enough to ensure the region's ability to compete internationally.
The timing of an end to the transfers was a political decision, he said.
"Overall, East Germany is in a strong growth phase which will probably continue in 1995," Tietmeyer said, adding, "The process of adjustment has gone ahead relatively well since the start of economic union five years ago."
It was five years ago on July 1, 1990 that the strong West German mark was introduced into the east, paving the way for political unification just three months later.
Tietmeyer noted that East German manufacturing output had risen by a fifth last year and that companies were gradually beginning to produce goods destined for export.
Nevertheless, unemployment remained far too high at 13 percent even though the jobs market was beginning to experience a turnaround.
In the 1990 currency union between East and West Germany, East German savings and loans were converted into marks at a two-to-one rate and incomes at a rate of one-for-one.
The result was a surge in purchasing power of East German households but union also put the region's companies, most of them hopelessly uncompetitive outside the cocoon of a planned economy, under enormous additional strain. Many of them went bust and unemployment in some regions surged to more than 30 percent.
For Tietmeyer, there was no basic alternative to the process and the choice of exchange rate was a political one.
While economists agree that a less favorable exchange rate for the East Germans would have sparked massive protest, they say the government failed to warn the country of just how great the burden of unification would be.
"The politicians' main mistake was not to have made this clear enough, and on the contrary raising expectations which could not realistically be fulfilled," Westdeutsche Landesbank wrote in an analysis marking the fifth anniversary of union.
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