The International Monetary Fund (IMF), headed by Christine Lagarde, is pushing for an increase in the eurozone rescue fund as talks between Greece and its private creditors stall.
However, Mrs Merkel disagreed with Ms Lagarde in her speech.
"We have said right from the start that we want to stand up for the euro, but what we don't want is a situation where we are forced to promise something that we will not be able to fulfil,” she said.
18.00 Louise Armitstead has filed on that Mandelson / Lyons row mentioned at 16.12. She reports:
Gerard Lyons, chief economist for Standard Chartered Bank, warned that the euro is "fundamentally flawed and cannot survive" in comments that triggered an extraordinary public rebuttal from Lord Mandelson.
In a hard-hitting speech at the Davos 2012 World Economic Forum, the economist said that Europe’s politicians had been “playing to the gallery” rather than tackling the fundamental problems of the crisis. “Europe has been driven by politics and the economics are now unwinding,” he said.
He added: “EMU stands for ‘even more unemployment.’”
The remarks prompted a spirited attack from Lord Mandelson, the former European Trade Commissioner. “I don’t think anyone in this audience needs to take lectures from bankers on the flaws in the financial system,” he told the same session.
17.40 Assistant editor Jeremy Warner has been tweeting from Davos. What he's hearing suggests the financiers there aren't quite filled with optimism about efforts to hold the eurozone together:
17.20 Hang on. Angela Merkel has been replaced by the entertainment, the Davos live feed shows. It's very upbeat, perhaps a counterpart to all that economic gloom.
17.04 Economist Gerard Lyons, of Standard Chartered bank, comments:
16.52 Now it's time for a Merkel Q&A, and reaction to her speech is coming in.
16.47 Merkel says she knows Europe is labelled the world's big economic "headache" but says let's be honest - it's not the only one. Disappointingly for the assembled press, she doesn't ruffle feathers by naming names.
16.45 Addressing what needs to be done, Merkel says "we have to be ready to transfer more competencies to Europe .. the [previous] stability and growth pact was not kept ... [it] was watered down.
She sees the fundamental point of the fiscal compact they are trying to introduce as setting a constitutional, legal cap on countries' debt. The European Court of Justice will monitor this when it’s done.
16.40 Talking about some countries that have 40pc youth unemployment - hello, Spain - Merkel says it's no surprise that some young people are not convinced that Europe is for them.
16.35 Now for the "but". Merkel says:
There is a clear lack of the political structures of the necessary underpinnings to make this project work... Do we dare more Europe? ... Yes.
She says they are ready to "dare more Europe" in three areas: budgetary discipline, competitiveness - linked to that also, jobs - and, thirdly, solidarity.
16.30 And Angela Merkel, the German Chancellor, is up, talking about - you guessed it - Europe:
The financial and economic crisis that started in America left a deep imprint on Europe and we are still working on the fallout from this.
Europe was a work of peace … and we cannot overestimate what a success this was, after a century of wars tore us apart.
We are lucky to be able to be with others and share our common future.
16.18 Meanwhile Paul Polman, chief executive of Unilever, has attacked final salary pension schemes - which he claimed were damaging the economy. City Editor Richard Fletcher reports:
"We have to look at the fact people retire with 50, 60 or 70pc of final salary," Mr Polman said. "Final salary schemes don't give young people the chance to enter the workforce."
His comments are likely to spark anger among Unilever staff.
Thousands of workers at Unilever, which owns a raft of household brands including Dove and Marmite, are currently involved in the first strike in the company's 80-year history in a row over pensions.
16.12 As we wait for Chancellor Merkel to make her appearance, Kamal Ahmed has the details of an entertaining spat between a top economist and Lord Mandelson. Very un-Davos, it seems:
Verbal punch-ups are fairly rare at Davos. Indeed, for the Big Suits here in the snow the problem is that everyone tends to agree wholeheartedly on the public platforms before going away and having a vociferous row over a glass of gluhwein.
Lord Mandelson, former EU trade minister and onetime Prince of Darkness under Labour, decided to break with Davos Rules at lunchtime, launching a spirited attack on Gerard Lyons, the chief economist at Standard Chartered. Lyons had the temerity to suggest that the euro was so fundamentally flawed it "cannot survive".
In piece of theatre straight from the Art of Politics, Chapter 1, Page 1, Lord Mandelson attacked Lyons for something he hadn't quite said. "Gerard, you clearly have no wish or will to see the eurozone survive," he said. He added for good measure that it would be a cold day in hell before eurozone leaders began taking advice from a bunch of bankers.
Lord Mandelson knows that, as chief economist, Lyons has about as much to do with the financial meltdown as I do. But, no matter, Lord Mandelson got the banker-bash in and spoke to Gerard as a disappointed father might a recalcitrant teenager. Willing the euro to collapse would bring calamity, a fall in living standards and countless other disasters. Better would be a "laser like focus" on fixing the damn thing. Shame on you Gerry!
Lyons gently pointed out that he was merely outlining the economic facts and at no stage had said he wanted the euro to collapse. But, Lord Mandelson had grabbed everyone's attention and the argument was made. The fact that he is launching a report on globalisation here tomorrow would, obviously, have nothing to do with his sudden plunge into the limelight today.
16.05 Louise adds:
I bumped into Sir Roger Carr, chairman of Centrica and Director General of the CBI. Just a few hours after his arrival he agreed that Europe was the “main issue for Davos.”
He said he wasn’t holding out for a solution but said he hoped there would be movement “ towards what we really need – for leaders to agree a way forward, quickly, and then stick to it.” The half-agreements and then withdrawals are “damaging for all of us” he said. Sir Roger will be around all week, we’ll keep you posted with his comments.
15.56 The Telegraph's Louise Armitstead is among those waiting for the day's big draw, the German Chancellor.
15.44 A Reuters blog called Confessions of a Davos spouse makes for juicy reading. Anya Schiffrin, a writer and academic who is married to the economist Joseph Stiglitz, reveals that "a lot of untoward groping goes on after hours". She explains:
Davos encourages bad behavior. It comes from the hot-house atmosphere of high-powered egos, the high altitudes combined with too much drink. All sorts of people who would never stay up late can be found - cocktail in hand - at the Google party, the Time Warner reception, and the gala dinner on Saturday night. It’s usually too loud to have a conversation but they try.
There are always a lot of men who become “geographically single” when they arrive, and even the nerdiest expert in anti-malarial bed nets or obscure financial instruments fancies himself a player the moment he steps foot in the Zurich airport. Late at night, these men can be found eyeing the local talent, and there are rumors of at least one baby being born nine months after a night of passion at Davos.
Lest you be thinking of hotfooting it out there next year, be warned. Anya adds:
Last year one businessman held forth about his travails in Russia and kept the crowd entertained with a lengthy description of how he lost his company to the tax authorities. That passes for a gripping evening at Davos.
15.39 They say a picture paints a thousands words. So we've compiled a slideshow of photos emerging from this year's Davos.
15.30 Richard also has more on those cashmere freebies mentioned at 13.05:
Quick update on the cashmere scarves. In Davos it's all about status - and the colour of the badge. Only white badge holders apparently got the scarves.
15.18 An update from our City Editor Richard Fletcher:
Our team in Davos was worried that you might think it was all glamorous parties, canapés and bumping into the great and the good.
So here is a picture of the rather crowded and surprisingly hot media centre where they spend much of their time.
We back in the office are reassured.
15.00 Kamal Ahmed, Sunday Telegraph Business Editor, has been taking a look at the annual PwC Risks report, launched in Davos. And it's rather alarming reading.
The report highlights five key factors that could threaten future stability - severe income disparity both within and between countries, fiscal imbalances across the globe, greenhouse gas emissions, cyber attacks and a water supply crisis.
Ian Powell, chairman of PwC, said that the danger of cyber attacks was little understood by many people at the top of business.
“The alarming growth in cyber crime highlights the challenge that all global business leaders face. Although they might be aware of the threat they are not necessarily equipped to respond effectively,” he said.
“After all, cyber is a global risk that knows no boundaries.”
14.55 Economics correspondent Angela Monaghan has caught up with Lord Mandelson, the former Business Secretary and European Trade Commissioner, as he does the Davos rounds. He had this to say about this morning's surprise 0.2pc contraction in UK GDP:
The growth figures are very disappointing, and they will worry all of us who want to see the economy turn round, investment to get going, and businesses to start growing again and generating employment.
I think we will have to wait for the next quarter figures before we can determine whether or not we’re facing a further recession. I hope very much that we are not but this underlines even more the need for Europe to collectively look at stronger growth policies alongside the need in some cases for fiscal deficits to be reduced and austerity policies to be fuller.
Everyone is waking up to the risk of austerity contagion and I think that you”ll see a more nuanced approach during the coming year, including from the British Government.
I think Plan A has already been adapted because it’s being implemented over a longer period of time, we’ve had to take on more debt in order to finance the social and unemployment costs of continuing recession. Nobody wants to see that continue but to head it off we need a different mix of policies across Europe and not just within single countries.
14.37 French oil major Total has stopped buying oil from Iran in line with new EU sanctions introduced on Monday, chief executive Christophe de Margerie has said at Davos. But he's not a fan of the political decision:
I think [Iran's] oil will go somewhere else... Iran may give a discount to make it easier and quicker but nothing will change.
14.30 Word to the wise. With so much going on, we have decided to run two live blogs for the next few days, separating out our coverage of the eurozone debt crisis and Davos 2012. We are covering Davos in more detail here, but it's still business as usual for our live eurozone blog (just in case you thought that had all blown over).
14.25 Our reporter Louise Armitstead, in Davos, warns that nearly one in four company bosses have admitted to being badly prepared and ill-equipped to push into the emerging markets - and that their focus is too narrow.
A survey of business leaders by Accenture found that 73pc said they needed to “speed up” their efforts to expand into emerging markets or risk it being “too late to do so.”
Of these, 40pc said they lacked the “strategic and operational capabilities to fully grasp opportunities” in their target markets while 57pc admitted they would have to “reassess” of “fundamentally rethink” their strategies entirely.
Companies are focusing on the obvious booming markets of China and India and are missing big opportunities.
Research shows that 21 other emerging economies, including Poland, Colombia, Malaysia, Nigeria and Kazakhstan, had more householder with an annual income above $50,000 in 2010
14.15 Think the world's rich should pay more tax? Then it's up to their governments to make them, says a top name in private equity. Richard Fletcher and Angela Monaghan were there:
Private equity would happily pay more taxes - but it is up to governments to change the rules, one of the industry's leading investors has claimed.
David Rubenstein, co-founder and managing director of Carlyle Partners, says he's willing to pay more taxes.
"If you change the law we will pay the taxes," David Rubenstein, co-founder and managing director of Carlyle Partners told a panel at the annual meeting of the Davos 2012 World Economic Forum.
Quizzed on the low level of taxes paid by private equity as part of a debate about the failings of capitalism, Mr Rubenstein insisted that all the industry wanted was clarity.
"No one ever says regulate me more, or tax me more, apart from Warren Buffett maybe," he said.
14.05 Head of Business Damian Reece has a interview with Paul Polman, chief executive of Unilever, who is raising red flags about food prices.
Paul Polman, chief executive of Unilever, has called on speculation in world commodity markets to be removed as he warned that global food prices would continue to rise.
Although food demand would continue to outstrip supply, Mr Polman said there was no "Malthusian panic" and that new approaches to agriculture from both business and governments including agencies such as the United Nations could overcome growing concerns over food security.
However dysfunctional markets for food and commodities were hampering efforts, he said.
"The speculative part has to be taken out of it. That's part of discussing new models of working. You need forward markets and guaranteed pricing, some elements need to exist. But you have seen incredible amounts of money going into commodities from other securities in recent years and it's not always adding value," he told The Daily Telegraph.
14.00 The anti-capitalist contingent is also busy in Davos. Protesters from the Occupy movement prepare to release a banner reading 'Hey WEF! Where are the other 6.9999 billion leaders?'
13.55 The Davos dress code is posing a headache for delegates. The Telegraph's Louise Armitstead explains:
It's snowed again over night in Davos. All very pretty but it’s also slippery, soggy and cold - so for delegates the first hurdle is what on earth to wear. Officially the dress code is “smart casual”; easy enough to say, just like “Greek bondholder agreement”.
Most men have plumped for the safety of suit with a thick overcoat and scarf. But the shoes are where the real problems lie. Those with walking boots are smug outside but inside are painfully self-conscious of their ugly appendages and ruffled trouser ends. It’s the other way round for the brown-suede-shoe brigade: inside all is well; outside walking is an undignified shuffle punctuated by violent spasms.
The organizers have tried their best by providing boot storage. But that just triggers a bag conundrum - boots don’t fit into briefcases and rucksacks are, well, urggh. For women it’s even harder, obviously – off-road shoes that ‘go’ with skirts don’t exist. Brown suede long-ish boots rimmed with fur are de rigueur: high heels are not. Cashmere is king at one end of the scale; big puffa jackets will do at the other.
There is an enviable elite that seems both suave and unruffled in their chinos and V-necks – but you can bet their ‘people’ aren’t carrying papers on capitalism but a full and comprehensive wardrobe.
13.50 Oh the indignity. Bookmaker Paddy Power is offering odds on slip-ups at Davos, tweets the Mirror's Graham Hiscott. Just for the record, it's offering 5/1 any UK attendee pictured slipping on ice, 7/1 any UK politician to confirm a skiing injury.
13.42 Spare a thought for the masters of the universe struggling to network in a snowy ski resort. The anonymous Tweeter Davos Spouse, billed as a "First time WEF-goer. And, in Davos, just a spouse", reports.
13.30 George Soros, the billionaire investor, has warned that the eurozone debt crisis could destroy European political union, writes our City editor Richard Fletcher.
The measures introduced by the European Central Bank ... have relieved the liquidity problems of European banks but they did not cure the financing disadvantage from which the highly indebted member states suffer.
Half a solution is not enough. It leaves the weaker members of the eurozone relegated to the status of third world countries that become highly indebted in a foreign currency.
13.05 You can't gather this many business leaders in one place without a few corporate freebies - and this year's Davos swag bag is already being eagerly unpacked. It's a generic black laptop satchel with the World Economic Forum logo, explain reporters at Business Insider. Best of what's inside is probably this:
That's right, a genuine cashmere garment, courtesy of
Sukhbaatar Batbold, the prime minister of Mongolia, and Madam Khorloo Otgontuya, presumably also of Mongolia Thanks, Mr. Batbold!
The lucky delegates also get a pair of snow cleats and several conference guides roughly the thickness of the Yellow pages. The full 24-photo gallery is definitely worth a look.
12.40 The latest Davos seminar, on "Reshaping how businesses operate worldwide":
12.16 Veteran investor George Soros on the UK GDP figures, which show the economy shrank at the end of last year:
To expect a rebound is unrealistic. But Britain is benefitting from not being part of the euro. The outlook for the euro is truly dismal. The EU is undemocratic to the point where the electorate is disaffected and ungovernable.
And on a Tobin Tax:
As a source of revenue, I'm in favour. But it won't be enough to prevent market excesses.
12.05 Soros on Greece:
He adds that "stimulus will have to come from the European Union. This will require eurobonds in one guise or another."
11.59 Gerard Lyons, chief economist at Standard Chartered, from Davos:
The euro is fundamentally flawed and cannot survive.
11.47 How about this for a soundbite from George Soros:
The austerity Germany wants to impose will push Europe into an inflationary debt spiral. The architects of the euro knew it was an incomplete currency when they designed it.
He adds that the ECB should work with the EFSF as a lender of last resort.
11.38 Soros says the measures taken by the ECB during the euro crisis have relieved liquidity problems for banks but are not a cure for indebted countries. He adds that "the euro must survive because the alternative, a break-up, would cause a meltdown that Europe and the world can't afford".
Soros: "It leaves the weaker members of the eurozone like Third World countries. It is Germany that dictates European policy. At times of crisis the creditors are in the driving seat."
Telegraph Head of Business Damian Reece:
11.35 Richard Fletcher is now at lunch with billionaire investor George Soros... along with most of the other journalists, delegates and leaders:
11.33 Telegraph City Editor Richard Fletcher is tweeting from Davos. Unilever chief Paul Polman has said that "final salary pension schemes don't give young people the chance to enter the workforce".
Here is Richard's reply:
11.26 Here is the first session at Davos 2012, focusing on capitalism in the 21st century. An often heated debate, but very interesting.
11.01 The PwC Global Risks report highlights top five threats to world security:
The increasing income gap between rich and poor, fiscal imbalances across the globe and the threat of wholesale cyber attacks have been identified as the biggest risks. The report reveals that income disparity could ultimately lead to social unrest as austerity drives across the West lead to increasing tension. The growing number of elderly people dependent on state help is also likely to cause funding strains in the future.
10.34 Citigroup chief Vikram Pandit tells Davos delegates that the bank yesterday turned down a client doing a deal with "excessive amounts of leverage".
10.13 In Davos, miniature snowmen have appeared with notes reading "Respect existance (sic) or expect resistance" and "We are the 99pc".
Remember the Occupy protesters are in town, living in igloos no less.
Meanwhile, inside the conference Citigroup chief Vikram Pandit is speaking:
08.39 The Time Davos Debate on Capitalism (featuring Brian Moynihan, chief of Bank of America) is focusing on job creation.
David Rubenstein, co-founder of the Carlyle Group, said: "Capitalism may be the worst form of systems, except for every other system."
08.16 Barely 15 minutes into Davos and we have our first soundbite.
Brian Moynihan, chief executive of Bank of America:
We reflect the excesses of society... Banks reflect the plus and minuses of capitalism and that includes boom and bust times.
07.52 Davos delegate league: This year the US has the most number of delegates at the World Economic Forum with 754. UK: 298, Switzerland: 205, Germany: 133, India: 133, Russia: 80, Vatican: four, Iran: zero.
07.17 The Telegraph's Damian Reece has written a great comment piece on Davos:
Davos used to be about discovering the new things that people from around the world were thinking. Now it’s about listening to people thinking the same things. It’s a giant rubber stamp, which is not that surprising given the uncertain territory we’re in. It’s a numbers game. Safety in numbers. But the real value is coming here to learn what not to think. If you want inspiration of the contrary kind, then this is the place to be. It’s a demi-paradise for anyone with an ounce of contrarian blood in their veins.
07.01 The Telegraph has Head of Business Damian Reece, City Editor Richard Fletcher, Sunday Business Editor Kamal Ahmed, Assistant Editor Jeremy Warner, Chief Business Correspondent Louise Armitstead and Economics Reporter Angela Monaghan in Switzerland. They will be reporting on the latest news from Davos over the next four days.
Richard Fletcher has started tweeting already:
06.55 Many world leaders are attending Davos this year, including the UK's David Cameron, South Africa's Jacob Zuma, Germany's Angela Merkel and Nigeria's Goodluck Jonathan. But there are also delegates from many organisations, causes and charities; here are just a few:
Bill Gates: co-chair of the Bill & Melinda Gates Foundation
Barbara Stocking: chief executive of Oxfam
Lord Turner: chairman of the FSA
Pascal Lamy: director-general of the WTO
Sir Martin Sorrell: chief executive of WPP
06.50 At an extremely snowy Davos, politicians, bankers and quite a few journalists have gathered for the World Economic Forum.
Jeremy Warner, who is in the Swiss resort, says this week's event won't provide a miracle solution to the eurozone crisis but it could help to lay the groundwork. He writes:
No one should expect breakthroughs from this Swiss Alpine retreat; Davos is not ultimately the place or event where decisions are made.
But the sheer concentration of central bankers, financiers, government ministers and business leaders assembled here for the World Economic Forum’s annual meeting does at least provide an opportunity to bang heads together.
The summiting of the past year has produced nothing but disappointment, but Davos is not a summit and it’s possible that its informal setting will help galvanise a more realistic approach to the eurozone’s problems. In any case, hope springs eternal.
I’m told that Angela Merkel, the German Chancellor, will be a little bolder than we have seen to date in her support for viable long-term solutions in her opening remarks on Wednesday evening.