By Tim Weber
Business Editor, BBC News website, in Davos
Ms Merkel wants to breathe new life into Germany's economy
Cutting red tape and boosting innovation across the European Union will be top priorities when Germany takes on the EU presidency in 2007, Chancellor Angela Merkel has said.
Europe's number one problem - unemployment - could only be solved by creating the right environment for growth and innovation, she said.
In an indirect swipe at US foreign policy, both on trade and the environment, she rejected attempts to solve world problems with bilateral treaties.
And praising the work of the World Trade Organization she promised to push for a breakthrough at the current round of trade talks.
Giving the keynote speech on the first day of the World Economic Forum in Davos, Chancellor Merkel defended trade and globalisation, but acknowledged that many people were worried about how it might affect them.
Promising to take personal charge of the fight against bureaucracy, Ms Merkel said she would draw on the experiences of both the UK and the Netherlands in cutting red tape.
The European Union, she said, had pledged to turn Europe into the most dynamic economy by 2010.
This date was unlikely to be achievable, she conceded, but Europe should not give up on the ambition.
Germany was suffering from a "self-inflicted paralysis" of its economy, Ms Merkel said.
Repeating a pledge made during last year's election campaign, she said she would return Germany to the ranks of the top three EU countries based on growth, innovation and jobs.
Ms Merkel's speech was strong on philosophy but short on political detail.
She promised a return to the basics of German political thinking, praising the principles of the "social market economy" that has been credited with West Germany's post-war economic recovery.
Economic growth was needed to create jobs, and to generate growth the state had to champion what she called "responsible freedom" - code in the German political debate for a capitalism that accepts its obligations to society.
For Ms Merkel, her speech at Davos meant going full circle.
When she first joined the German government in the early 1990s - under Chancellor Helmut Kohl - the World Economic Forum invited her to Davos as a "Young Global Leader of Tomorrow".
WEF founder Klaus Schwab was quick to point out that today, Ms Merkel had indeed become a global leader.