Merkel defends EU legacy on refugees and austerity

But she said that fighting global warming and changing relations with the US, China, and Russia might emerge as more pressing challenges in the years to come.

"The issue of immigration will continue to accompany us for the next decades," she said.

"If there are almost 70m displaced people worldwide, it was understandable that Europe had to take over a million of them," she added, referring to 2015, when more than 1m refugees, mostly from Syria, walked into Europe.

"The important thing is that the monetary union and the euro have remained," she also said, referring to the EU bailouts and the cost-cutting measures that came with them, primarily due to German demands.

"The reforms carried out in Ireland, Spain, Portugal and Greece have turned out to be correct," she added.

Merkel spoke ahead of European Parliament elections at the end of the month in which populist parties, many of which campaign against migrants and fiscal discipline, are polling to do better than ever.

She recognised that her open-door policy for refugees "generated social debates" and that financial austerity put an "enormous burden" on ordinary people.

But she said: "If in the euro crisis and the refugee crisis we had not acted, or we had done it in a completely different way, I think it would have had much worse consequences".

"We are certainly at a time when we must fight for our fundamental principles and values," she also said, referring to the populist threat.

She noted that far-right parties, such as Italy's League, had no place in the centre-right European People's Party in which her own Christian Democratic Union party resided.

But she said they ought to be treated with "sensitivity" instead of being demonised.

"I want Italy to find a way to improve its growth. We are all interdependent," she added, alluding to the League's demands to water down EU fiscal rules so that Italy could spend more on welfare.

Europe also needed to find a new narrative to justify integration, Merkel said.

"Many people are concerned about Europe, including myself," she said.

"Simply stating that we've enjoyed seven decades of peace is no longer enough to justify the European project. Without forward-looking arguments to justify Europe, the European peace project would also be in greater jeopardy than one may think," she added.

Climate change

The chancellor focused on fighting climate change as the EU's next big task after the euro and refugee crises.

"It is heartbreaking to see how the situation has worsened in so many ways ... There clearly is a lack of consistent political action, on a global scale," she said.

But she said the way forward on climate might also involve controversial decisions.

She said Germany and the Netherlands could only become carbon neutral by 2050, as they intend to, if they were prepared to invest in carbon capture and storage (CCS).

"This can only be done if one is willing to capture and store CO2," she said.

"There are two possibilities - you can either store carbon, or you can reforest on a large scale ... In the Netherlands, for example, the latter is not an option. There, CO2 could be pumped into empty gas fields. We could do the same in Germany," she noted.

"The method is called CCS and for many in Germany it is a highly-charged term," she added, referring to CCS opponents, who say it perpetuates fossil fuel use.

The German chancellor noted that Europe is increasingly needing to stand up on its own for what it believes on the world stage.

Changed world

"There is no doubt that Europe needs to reposition itself in a changed world ... The old certainties of the post-war order no longer apply," she said, amid a widening rift on trade, climate, and defence with its oldest ally, the US.

"They [China, Russia and the US] are forcing us, time and again, to find common positions," she said.

"Germany is not a colossus" either in global terms or even in European ones, she added.

And Europe's "political power" would not be "commensurate with our economic strength" unless member states acted in concert to stand up to their global rivals, Merkel said.