A return to trade protectionism is the greatest danger facing the global economy, German Chancellor Angela Merkel was quoted as saying.

"The greatest danger that threatens us is protectionism, and we are still not taking enough steps to ensure genuinely free trade," Merkel said in an interview with the Financial Times ahead of the Group of 20 summit in Seoul this week.

The G20 summit has been pitched as a chance for leaders of the countries that account for 85 percent of world output to prevent "currency wars" from spreading to become a rush to protectionism that could imperil the global recovery.

Merkel told the paper that China should be persuaded with "facts and figures" to set a "fair exchange rate" for its currency, the renminbi or yuan , rather than be attacked for its policy.

She also dismissed a U.S. proposal for quantified balance of payments targets as "too narrowly conceived."

"I don't think much of quantified balance of payments targets," she said.

"It is not just a question of exchange rates, but also a question of competitiveness." (Reuters)