New year priorities

German Chancellor Angela Merkel warned that the country's worst post-war recession was not yet over.

"I tell you very openly, we cannot expect the economic downturn to be over quickly," she said. "Some things will initially be more difficult next year before they can improve."

She said that Germany, which has Europe's biggest economy, would continue to fight for new international rules for financial markets "so that the combination of excess and irresponsibility can, in future, be prevented in time."

Actions taken in the coming year will determine how Germany emerges from the crisis, and whether it lays the groundwork to avert a similar debacle, she said.

The chancellor, who won a second term in office in last September's general election, said her center-right government would work with business leaders and banks to ensure that companies, particularly small and medium-sized firms, can survive a nagging credit crunch.

The government expects the economy to grow by 1.2 percent in 2010, after slumping by almost 5 percent this year in Germany's worst decline since World War II. But next year's budget foresees a record 85 billion euros ($122 billion) in new debt.

Confronting climate change

Merkel also said that although the economic slowdown had created severe problems for the world's developed nations, it must not prevent them from confronting climate change after the failure of this month's Copenhagen summit.

"The global crisis must not serve as an excuse to brush aside other challenges facing humanity," she said.

"Industry and environmental protection are not in opposition, they rely on each other, now more than ever. We must not let ourselves be put off by setbacks such as the climate conference in Copenhagen."

Securing stability in Afghanistan

Chancellor Merkel also said that Germany still had an important mission to complete in Afghanistan.

In a reference to the 4,500 German soldiers working in Afghanistan, she said that the government "knows of the difficulty and danger of their mission."

As the Bundeswehr mission in Afghanistan becomes increasingly unpopular in Germany, the government has voiced support for US President Barack Obama's timetable to begin withdrawing from Afghanistan in 2011, but has not yet made new commitments to a proposed troop surge ahead of that date.

"Politically, we must and we will create the conditions to hand over responsibility to the Afghan people in the coming years, step by step," Merkel said.

"This is the purpose of the Afghanistan conference at the end of January in London," she added.

rb/dpa/Reuters/AFP
Editor: Chuck Penfold