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German chancellor Angela Merkel met Spain's new prime minister in Berlin on Thursday ahead of an EU summit at which leaders plan to address ways of stimulating growth and employment.

Mariano Rajoy's conservative government took office last month. It has embarked on a labour reform drive to tackle an unemployment rate that the finance minister said on Thursday hit nearly 24 percent in the fourth quarter; youth unemployment is above 40 percent.

Rajoy set out his reforming credentials in Germany, a country that has strongly advocated the mixture of deficit-cutting and structural reform he is trying to put into effect.

Spain's problems are a source of concern because it is considered to be too big for the eurozone's existing firewalls to contain if it defaulted.

Speaking at a news conference after the talks, Rajoy said it was not just Spain that needed to change. "Controlling the deficit is not enough for Europe to grow, we all have to carry out structural reforms," he said.

Rajoy said that at the summit on Monday he would ask for unused money in existing EU funds to be channelled into job-creation programme. Merkel voiced support for this idea and said Germany would be flexible in considering how existing European Union funds can be used to stoke growth.

German officials say they don't immediately have a figure for how much money might be available. Merkel also renewed her efforts to deflect criticism of Germany's focus on austerity - a day after she poured cold water on calls for a big increase in the eurozone's planned 500 (b) billion euro (650 (b) billion US dollar) permanent rescue fund.

Despite expectations of a eurozone recession, she also opposes outright stimulus programmes at a time when Europe is struggling with debt. "A solid budget and growth are not a contradiction - in the long run, we need both," she said.