Merkel Urges Recovery and Resolve in First Speech

Merkel, 51, who is Germany's first female leader and the first from the former communist east, struck a personal note when she discussed her hopes for the country's future. "The biggest surprise of my lifetime is freedom," she said, saying she had never expected to see the other side of the Berlin Wall before she retired.

"Let us dare to have more freedom," she said, including more opportunities for Germans to pursue their hopes for prosperity. "Who would have thought that the highest governmental office would be given to a woman this year already?" Merkel said.

Turning to economic issues, Merkel told parliament that her left-right government would return the country to its status as an economic powerhouse. "We want to create the conditions for Germany to be among the top three in Europe in 10 years" in terms of economic growth, she said in the keenly awaited address.

Merkel took office last week in a coalition with her conservative Christian Democrats and her predecessor Gerhard Schröder's Social Democrats with a mandate to slash the 11-percent unemployment rate, jumpstart the moribund economy and tame the spiraling public deficit. She wasted no time in painting a picture of a country on the ropes, but one more than capable of fighting back.

Merkel urges Germany to take its foot off the brakes

"Our growth hasn't picked up in years. Our debt has risen to alarming levels. The new (eastern) states stopped catching up years ago," Merkel said. But she said her coalition government had a unique opportunity to solve these problems if it worked together. "A government of action will have to take some blows. But we will show one thing: We have major potential in our country. Germany is full of opportunities -- inside and outside."

"One thing is clear: we all bear responsibility for the fact that we are not using our opportunities to the full. Let us release the brakes on growth ... Let us show what is possible," she said.

"We want to get the labor market in shape, we want to make our schools and universities world-class, we want to bring the deficit under control and repair our health, pension and nursing systems," she said to applause.

Germany to work with EU within limits

Merkel also pledged that her government would try to find a compromise with the European Union over its 2007-2013 budget. But she warned that Germany would not accept too great a burden, adding that she would press for a "lasting solution which is in the pan-European interest" at the crucial EU summit in December.

"Germany is prepared to contribute to a sensible compromise," she said but added that Germany's "frightening" debt levels meant the economy would not be able to tolerate new budget obligations. The last EU summit in June ended in stalemate and recriminations over a proposed 1.06 percent budget spending cap.

Merkel also used the address to reiterate her stance on the kidnapping of Susanne Osthoff, the German national taken captive a few days ago in Iraq. The chancellor told the assembly that Germany would not bow to the captors. "We will not be blackmailed," Merkel said. "We cannot fail in our fight against terrorism."

Hostage stance reiterated, terrorism condemned

Merkel added that her government "was aiming all its efforts at protecting the lives of Susanne Osthoff and her driver" and reiterated that she "strongly" condemned the hostage-taking, saying that the government "will do all it can to bring them to safety as soon as possible."

The chancellor told parliament that international terrorism was the biggest challenge facing the international community: "It is directed at everything that is important to us, at the core of our civilization. It is directed against our entire value system; against freedom, tolerance and the respect of human dignity, democracy and the rule of law."

"One thing is clear: This government, this parliament will not let itself be pressured."

Merkel speaks of open dialogue with Islam

During her speech, Merkel also addressed the topic of Islam and pledged an "open and honest" dialogue with the Islamic world. "Dialogue with Islam carries great significance … we have to learn to understand each other," she said. "We will do this in an open and honest way. We will not brush aside differences, but name them clearly."

While attempting to open the way for communication, Merkel denounced forced marriages and so-called honor killings. "I say this explicitly, as chancellor and also as a woman, that forced marriages or honor killings -- both, by the way, awful words -- have nothing, completely nothing, to do with honor and also no place at all in our society," she said. "We cannot tolerate them."

But Merkel stressed that in general "Germany is a tolerant and cosmopolitan country" and pledged to defend the rights of all minority groups.