Nov. 10 (Bloomberg) -- Chancellor Angela Merkel said the global economic crisis will weigh on Germany “for the foreseeable future” and her government’s success depends on boosting growth with tax cuts.

Germany must “draw the right cards at a time when the deck is being reshuffled globally,” Merkel told lawmakers in Berlin today in her first policy speech to parliament since being sworn in for a second term on Oct. 28. The economy, Europe’s biggest, faces its greatest challenge since reunification 19 years ago, she said.

Charting her four-year agenda, Merkel said the government is extending subsidies to keep workers on payrolls as unemployment increases next year and the deficit rises to 5 percent of gross domestic product. That means “hard decisions” are needed, she said.

“Creating growth is the goal of our government,” Merkel told the lower house of parliament, or Bundestag. “And I say openly: Even this path is no guarantee we’ll be able to overcome the consequences of the global economic crisis quickly and in a stronger position.”

Merkel pledged to overhaul income taxes to make them “simple, low and fair” after 2010. That addresses a demand by the Free Democrats, who displaced the Social Democrats as junior coalition partner after Sept. 27 elections.

“Everything we do is influenced now and for the foreseeable future by the first challenge” of overcoming the crisis, Merkel said. Germany, the world’s top exporter, will use its “classic strengths” in industrial fields such as machinery to spark recovery after its worst postwar recession.

“What lies before us is no easy path,” she said.

To contact the reporter on this story: Tony Czuczka in Berlin at aczuczka@bloomberg.net

Last Updated: November 10, 2009 06:40 EST