Climate protection took the top spot in the chancellor's speech on Wednesday during a debate in which she was grilled on her policies.
Merkel said the fight against climate change was a "task for mankind" as she spoke to a packed-out audience in one of the Bundestag's most anticipated highlights.
The chancellor also used her time in the spotlight to promote digitization, stronger ties with the EU, integration and the rise of intolerance in society.
"Climate protection will cost money," Merkel said on Wednesday during the lively debate on Germany’s 2020 budget. "This money is well spent. If we ignore it, it will cost us more.
"Doing nothing is not an alternative."
In order to tackle the climate problem, Germany must rely on innovation, research, technical solutions, but also on the mechanisms of the social market economy, said Merkel.
She called for a further expansion of renewable energies, including an acceptance for wind farms, which tend to be built in rural areas and often cause friction among communities.
Merkel warned against any "arrogance" among city dwellers towards people in rural areas and called for a "new alliance of city and countryside".
The speech comes after elections in Brandenburg and Saxony where Merkel's centre-right Christian Democrats (CDU) suffered heavy losses and the far-right Alternative for Germany made gains.
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'We have to become better'
She said moving forward with digitization is crucial to maintaining Germany's prosperity.
Germany is known for lagging behind on digital infrastructure, with patchy internet coverage around the country. However, Merkel insisted it was a priority and that the country was moving forward.
"We have to develop a strategy of how we provide blanket coverage, including for farmers and many others, to have access to broadband internet," she said.
"We have to become better, faster, and keep up in the area of artificial intelligence. We have developed a strategy and invited internationally recognized professors to come to Germany to work."
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'Prepared' for a no-deal
As The Local reported, Merkel also discussed Brexit and closer cooperation within the EU in the face of changes.
Speaking to the Bundestag, the German leader said there was still time to hammer out a deal.
"The EU will in a few months experience the exit of an important member, the exit of Britain," Merkel said.
"I am firmly convinced that we still have every chance to do it in an orderly way and the German government will work toward making this possible until the very last day."
However she added that if the EU and Britain failed to agree on terms for Brexit, Germany was "prepared" for a disorderly divorce.
Merkel also referred to the economic slowdown in Germany but insisted there was no shortage of money for investments in infrastructure.
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The chancellor came under fire from opposition parties.
AfD faction leader Alice Weidel accused the government of pushing the country into recession. She warned: "The crisis is not coming, the crisis is already here."
She also accused the coalition of "deindustrializing" Germany with "green-socialist ideology" based on "climate madness."
Dietmar Bartsch, co-leader of The Left (die Linke) parliamentary group, accused the government of setting the wrong priorities in the budget.
Dietmar Bartsch of Die Linke in the Bundestag. Photo: DPA
"A strict debt brake instead of necessary investments, military instead of increasing social security contributions and allowing mass poverty among children and the elderly: that is the priority in their budget."
'We need to find answers'
Merkel also called for more action against hate and intolerance in response to comments from the AfD on the government's immigration policy.
"We know that in Germany people have concerns, that people feel left behind, that development between the town and the country are very different," Merkel said. "We need to find answers to that."
Merkel went on to say that racially and religiously motivated attacks, as well as violence and hate speech, happened every day.
"We have to fight against that," she said, adding that "proper co-existence is not possible" while there is still tolerance for racism and hatred.
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