Pep Guardiola's men secured a 4-0 win over Freiburg on Saturday, extending their commanding lead at the top of the table to 16 points by virtue of Bayer Leverkusen's 2-1 defeat at the hands of Schalke.
However, though conceding that die Roten's domestic dominance is in no doubt, Netzer stressed that only by proving themselves on the biggest stage can the European champions show how good they really are.
"The last-16 tie against Arsenal is a real test for Bayern," the 69-year-old wrote in his column for Bild am Sonntag.
"Now more is required than they have shown in their stroll through the Bundesliga. This must therefore be the greatest challenge for Bayern, the senses must sharpen for a competition in which they take on high-quality opponents.
"For in Germany there are very few challenges where they might fail. It is more difficult for them to exercise dominance so often shown in the league [in Europe].
"The games against Arsenal will give first clues as to where exactly Bayern are on a continental level. The 3-1 win at Manchester City in the group stages was the best performance in Europe under Pep Guardiola. Now is the time to substantiate that."
The Bavarians are looking to defend the European crown they secured in Wembley last May, defeating fellow Bundesliga side Borussia Dortmund 2-1, and Netzer sees this continued success as a mark of how strong German football currently is.
"The Bundesliga is definitely in the best shape since its founding in 1963," the former Borussia Monchengladbach man added.
"It is the world's flagship league. The Bundesliga is exemplary and inspiring to young people."
Bayern travel to face Arsenal on Wednesday in the first leg of their Champions League last-16 encounter.