ANGELA MERKEL, the Chancellor of Germany, yesterday promised a free-market revolution in Europe’s biggest and most troubled economy, dismantling the mass of regulations that have been built up over recent decades.

She said that Germany must follow the economic policies of Britain, earning loud applause from the audience of leading capitalists at the World Economic Forum in Davos, Switzerland.

Using language almost identical to that used by Margaret Thatcher when she was the British Prime Minister, the centre-right leader mapped out a U-turn in her country’s treasured social model, repeatedly emphasising that Germans must stop fearing the world, embrace freedom and learn to take responsibility for their own lives instead of looking to the State.

She said that rules introduced by previous governments to protect workers were strangling initiative, and had led to “terrifyingly high unemployment”. She declared that there would be a new type of “social market economy”.

Although Frau Merkel’s speech was short on details, it will counter speculation that she has backed away from unpopular free-market reforms after she won the general election by a surprisingly narrow margin, forcing her into a grand coalition with the former centre-left government.

Her predecessor, Gerhard Schröder, was a staunch defender of Germany’s social model.

“We are as if paralysed by events and situations, and don’t seem to be able to overcome this — this doesn’t work, that doesn’t work. Germany needs more freedom of movement, more freedom of action,” Frau Merkel said. “If we want to be among the leaders in employment and growth . . . we have to open the windows, breathe deeply the fresh air and see the opportunities rather than the risks and hazards.”

She complained that Germany had become accustomed to “overly rigid regulations” that had been in effect for decades and said: “We must be more flexible now.”

She said that red tape was hugely expensive to companies, and declared: “We should invest this money in young people, rather than continuously devising new regulations. We can’t proceed further in that direction. We must gauge the true cost of bureaucracy — we must look to the experience of the Netherlands and Britain.”

Herr Schröder’s modest reform attempts were stymied by lack of political support. Frau Merkel said: “We have to recognise it is very difficult for politicians to see dismantled something they have themselves created, so we have to help them along.”

www.timesonline.co.uk/davos

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