Merkel was outlining her coalition's policies in a speech to parliament
Chancellor Angela Merkel has warned German jobless figures will rise despite her new government's focus on tackling the financial downturn.
But she said the global economic crisis must not be used as an excuse for failing to protect the environment.
Mrs Merkel was outlining her new coalition government's policies in a speech to parliament.
Two months ago she won a second term as head of a coalition between her CDU/CSU party and the Free Democrats (FDP).
The chancellor said her focus was on stimulating growth in Europe's biggest economy, but added that "the problems will get bigger before things can get better.
"Joblessness has risen and will rise further."
Germany's deficit - which currently stands at about 1.5 trillion euros (£1.35 trillion) - would rise to 5% of gross domestic product in 2010, she said, sketching out plans to cut income tax from 2011 in an effort to boost growth.
She added that her government would extend a subsidy scheme - known as Kurzarbeit - which she said had been successful in helping companies to reduce workers' hours so that more jobs were not lost.
The chancellor warned a failure to reach agreement at next month's climate conference in Copenhagen would be a major set-back.
"We cannot afford this," she said. "We would never allow the worldwide financial and economic crisis to be a cheap excuse for failing to protect the environment, that would be the biggest error we could make.
"Time is running out and the EU has developed a clear and distinct negotiating position. Now we expect commitments from the United States and countries like China and India," she added.
Mrs Merkel also called on autogiant General Motors to come up with a "reliable concept" for the future of its German-based subsidiary, Opel.
She had backed the planned sale of Opel to car parts maker Magna and Russian bank Sberbank in order to save jobs, but GM pulled out of the deal last week.