Europe will have to work "very hard" to maintain its generous welfare system and remain competitive, German Chancellor Angela Merkel said.

"If Europe today accounts for just over 7.0 percent of the world's population, produces around 25 percent of global GDP (gross domestic product) and has to finance 50 percent of global social spending, then it's obvious that it will have to work very hard to maintain its prosperity and way of life," Merkel told the Financial Times in an interview, according to AFP.

Europe will have to spend more on research and education and overhaul its tax and labor markets to restore competitiveness, she argued.