"Germany will use its G7 presidency to cut off the flow of finances to international terrorism," Merkel said at the Munich Security Conference in the Bavarian capital.
Germany took over the G7 presidency in June 2014 and is scheduled to host an annual meeting of G7 leaders in June 2015.
Regional conflicts, lack of inclusiveness in political systems, poor education have long term effects on the stability of the countries, the chancellor noted.
She also noted that security achievements must be maintained, and the situation on Afghanistan requires more help.
"Present international order rests on bitter experience of two world wars," she pointed out.
Concerns about security in Europe rose in the past month after France was hit by a series of attacks by Islamic extremists in and around Paris. In the following weeks, raids in France, Germany and Belgium uncovered terrorist cells that were recruiting locals to fight alongside insurgents in Syria.
