Incoming German Chancellor Angela Merkel on Saturday pledged that her conservative coalition government would work to revitalize the country's chronically sluggish economy and bring down a jobless rate of 11 percent.

Merkel said that the controversial measures such as raising value added tax (VAT) to 19 percent from its current level of 16 percent were necessary and made on an honest analysis of Germany's problems.

The VAT rise is one of the key measures to bring down the budget. Other measures include raising the retirement age and cutting a range of subsidies.

Germany must face up to a period of austerity, Merkel told a news conference one day after an agreement on a power-sharing administration was struck Friday.

The finalizing of the agreement between Merkel's Christian Democratic Union/Christian Social Union (CDU/CSU) and the Social Democrat Party of outgoing German Chancellor Gerhard Schroeder hasput an end to nearly two months of political uncertainty in Germany.

The deal was a last-minute horse-trading on contentious issues such as new taxation and the future of the country's nuclear powerplants.

The parties agreed to raise the VAT, levy more tax on high income earners, and phase out all nuclear power plants in Germany over the next two decades as Schroeder's government had committed itself to doing so.

On foreign policy, the new government will seek improved ties with the United States, which have been soured over German opposition to the Iraq war, and strengthen relations with European Union members.

They also accepted a compromise formulation on Turkey's bid to join the EU.

The accord is to be approved by separate party conventions on Monday to pave the way for the parliament to elect Merkel on Nov. 22 as the first female chancellor in Germany's history.

Merkel said she was optimistic about her government.

"I foresee that Germany should in 10 years' time be able to sayit is back among the top three countries in Europe," she added.

Source: Xinhua