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Austerity Only Way to Regain Investors’ Trust: Merkel

Friday, 21 Jun 2013 | 8:52 AM ET
German Chancellor Angela Merkel, speaks in front of a flag of the European Union
Sean Gallup | Getty Images
German Chancellor Angela Merkel, speaks in front of a flag of the European Union

German Chancellor Angela Merkel said that fiscal consolidation must continue in the euro zone if the region is to regain the trust of international investors.

"Being part of the single currency means we must commit ourselves to economic reform,"she said on Friday in Russia.

"We need each country to pursue its own fiscal consolidation and structural reforms…otherwise international investors will not believe that we can manage our economies sustainably," she told an audience of delegates at the Saint Petersburg International Economic Forum (SPIEF).

(Read more: Greece Aid Suspension Talk 'Premature': Senior IMF Official)

Speaking alongside President Vladimir Putin, the German leader said that Europe would only recover economically if it regained this trust, which was lost as a result of the financial crisis.

"Each country in the euro zone needed to address reforms to regain competitiveness,"she said, reiterating that she sees "no contradiction between growth policies and sound fiscal policy."

She said Germany's economic future also depended on the health of its neighbors."Although Germany is the largest economy in Europe, in the long run we can only be prosperous if the rest of Europe is prosperous."

(Read more: Euro Zone: Downturn Eases but Outlook Still Bleak)

Germany used to be seen as "the sick man of Europe," she said, before it underwent structural reforms and "implemented sound fiscal policy" as countries in the euro zone were being asked to do now.

Banking union and an "integrated, coordinated labor market" would be a part of the process towards building Europe up again, though she said massive youth unemployment remained "the greatest challenge" facing the euro zone and European Union.

"We need to decide how we want to earn our money, build our infrastructure and cut red tape [to encourage investment]," she said.

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