The statement is made in 'Some Observations on Causes of War in Ancient Historiography', an essay (collected in the 1966 anthology Studies in Historiography) considering how and to what ends ancient historians attributed causes to wars. The Iliad takes centre stage in the essay; the Germania is mentioned only in passing. You can read the whole essay if you like but the extract below more or less covers his reasons for calling the books dangerous. What he considers dangerous is not so much the Iliad itself but its reception and repurposing in popular historio-mythographies.
... there is an even great calamity than books destroyed by war: it is the calamity of books and papers inspired by war, books and papers on causes of war, war psychology, war guilt, future wars. To this sad category of papers inspired by war belongs, I am afraid, the paper I am going to inflict upon you now. My only consolation, if it is a consolation, is that there is a third, even worse, category of books and papers: the category of the books that inspired wars and were themselves causes of wars. No international enterprise as yet has taken the initiative in collecting the hundred most dangerous books ever written. No doubt some time this collection will be made. When it is done, I suggest that Homer’s Iliad and Tacitus’ Germania should be given high priority among these hundred dangerous books. This is no reflection on Homer and Tacitus. Tacitus was a gentleman and, for all that I know, Homer was a gentleman too. But who will deny that the Iliad and the Germania raise most unholy passions in the human mind? It is fortunately not my task to speak here about the influence of Tacitus’ Germania. One horror is enough for one day. But if I am going to speak about causes of war in ancient historiography I cannot pass over all the nefarious consequences of that great epic model -the Iliad. Not only did the Iliad create the model of all those Achilleses and Agamemnons who have troubled the world ever since, but all the bad historians have learnt from Homer to attribute silly causes to earnest wars.
Yet Homer was so nice - if I may apply to him this homely English adjective - Homer was so nice about war. He knew why people go to war and he stated it so simply: they may go to war by sheer necessity for their children and their wives; or they may go to war to avenge an offence, after the enemy has carried away their oxen or their horses or has wasted their harvest. Or they may fight to get glory for themselves and their chieftains. Or they may just want booty and wealth for themselves, though it is characteristic of Homer that this is rather implied than said in so many words. But war remains a sad necessity, the lot that gods have spun for miserable men that they should live in pain. Thus, ab Homero principium. In the first part of my paper I am going to summarize as briefly as I can what Greek and Roman historians discovered about causes of war. In the second part, for which I venture to claim some originality, I am going to discuss the place of ancient historical writing about war in the history of ancient political thought and also its influence on modern historical writing.
It is hardly necessary to say that there is nothing in Homer of the many things that later generations found in Homer - the conflict between Greeks and Barbarians, the permanent enmity between Europe and Asia. The Iliad was not meant to be a chapter in the history of the wars between East and West. Yet, as we all know, the Iliad was treated as such a chapter, and Herodotus was already aware of this. (112-3; emphasis mine)