German Chancellor Angela Merkel has defended Germany's heavy dependence on exports, saying international trade would remain a key driver of growth in Europe's biggest economy.
Chancellor Merkel says aid for ailing companies has nothing to do with the election
"Are we too dependent on exports? I believe there is no alternative to being a country with strong exports," Merkel told a conference hosted by Germany's main industry association, the BDI.
"Otherwise we are putting our standard of living at risk," she said.
Merkel's remarks came in response to warnings from economists that a slump in global trade meant that Germany should take steps to boost domestic demand to offset falling foreign orders, and reduce the nation's reliance on export markets.
Germany is the world's biggest exporter of goods, with particular strengths in the machinery, chemicals and auto sectors. Its manufacturers have been hit hard by a collapse in demand caused by the global financial crisis.
Officials in Berlin expect the German economy to shrink by around six percent this year, the second biggest slump among advanced economies after Japan.
Chancellor Merkel told business delegates that the scale of the economic crisis meant world leaders must press on with the global market reforms the Group of 20 leading industrial and emerging economies agreed to March this year.
"We have to work further on the rules with a continuing effort," she said.
Election: what election?
Speakers at the conference in Berlin included leading politicians – eager to highlight their political messages ahead of general elections in September.
Chancellor Angela Merkel also used the conference to defend her policy of providing state aid for ailing companies. Her conservative-led coalition government has faced mounting criticism for supporting General Motors' European unit Opel, but turning down a bailout for the troubled German retail and tour group Arcandor AG.
BDI president Keitel says German taxpayers should not pay for management failings
Opel, Merkel said, was a special case, while insolvency would help lay the ground for restructuring Arcandor, which operates Germany's Karstadt department store chain. Merkel said Arcandor had been in trouble before the crisis hit Germany last year, so it is not entitled to receive funds and loan guarantees. Arcandor filed for insolvency last week.
"I wouldn't have decided differently if Germany had not been in an election campaign," Merkel told the BDI convention.
Parliamentary elections are scheduled for September 27.
Foreign Minister Frank-Walter Steinmeier, who is Merkel's Social Democratic challenger for the chancellorship, said governments must be prepared to step in to help save jobs.
"To me, it concerns the future of this nation and the economy," Steinmeier told the industry delegates in Berlin.
A highly risky strategy
BDI president Hans-Peter Keitel said he hoped that the government's strategy in rescuing carmaker Opel would remain an exception to the rule.
"The German taxpayer must not end up footing the bill for grave management blunders," he said.
Keitel also said the government's economic policy should not be driven by populist efforts to win votes.
"By deciding to rescue Opel, the government has displayed a kind of behaviour that it sometimes likes to accuse us business people of."
This was a highly risky strategy that might cost the taxpayer dearly in the end, Keitel added. The BDI president also said there must be limits for industry demands for state assistance.
"We should not try to make it is easy for us by turning to the government in times of crisis," he said.
Editor: Susan Houlton