January 28, 2011 / 6:14 PM / in 7 years

DAVOS-Merkel urges EU to follow German austerity lead

* Merkel says austerity doesn’t hinder growth

* Urges convergence of EU countries’ social systems

(adds quotes, detail)

DAVOS, Switzerland, Jan 28 (Reuters) - Excessive public debt is the greatest threat to prosperity in Europe, German Chancellor Angela Merkel said on Friday, insisting that other EU countries should follow Germany’s example of austerity. “Savings measures and growth are not opposites,” she told business and political leaders at the annual World Economic Forum in Davos.

“I was criticised and told Germany should contribute to growth, and if you consolidate, you’ll endanger growth. But we had a very interesting experience in the last two years. We cut spending and had growth of 3.6 pct last year,” she said.

The euro zone debt crisis showed that Europe as a whole needed to regain competitiveness by coordinating its economic, labour and social welfare policies much more closely.

“You cannot have a common currency and completely divergent social systems,” Merkel said.

European Union countries should move towards convergence of their retirement age and education systems, she said, citing Germany’s constitutional amendment forcing a reduction in public deficits, known as the “debt brake”, as a model for others.

Merkel also voiced concern about first signs of a resurgence of protectionism after the economic crisis and appealed for a major political drive to clinch a world trade agreement this year, saying it would bring economic benefits for all.

“Debt is the greatest threat to prosperity on our continent,” she said.

The chancellor reaffirmed her determination, along with French President Nicolas Sarkozy, who addressed the Forum on Thursday, to do everything to defend the euro in the current debt crisis.

“If the euro fails, then Europe would fail,” she said. “We will defend this euro. We must keep it durably stable.”

But she gave no indication of whether Germany is willing to drop its opposition to increasing the euro zone’s rescue fund to help countries struggling with high debt burdens. (Reporting by Paul Taylor and Paul Carrel; editing by Mark Heinrich)

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