Angela Merkel has used the first, agenda-setting speech of her third term in office to criticise America's uncompromising defence of its surveillance activities.

In a speech otherwise typically short of strong emotion or rhetorical flourishes, the German chancellor found relatively strong words on NSA surveillance, two days before the US secretary of state, John Kerry, is due to visit Berlin.

"A programme in which the end justifies all means, in which everything that is technically possible is then acted out, violates trust and spreads mistrust," she said. "In the end, it produces not more but less security."

Merkel emphasised the need for wider access to the internet for citizens: "We want to make sure the internet retains its promise. That's why we want to protect it".

In outlining her government's digital agenda, she once again described the internet as Neuland, or virgin territory, a phrase previously mocked by activists who have for some time been urging the German chancellor to make data protection a priority.

Merkel balanced criticism of the US with praise, insisting: "Germany can't imagine a better ally than the United States of America." She admitted that Germany and the US were still far from coming to an agreement over a "no-spy pact", similar to the arrangement between the US and Britain, but she said she would not support using a suspension of the free trade agreement with the US as a bargaining tool.

In the rest of her speech, which was frequently interrupted by interjections from Green and Left party MPs, Merkel used familiar phrases to cover familiar themes. Europe's crisis might have vanished from the top headlines but it was far from over, she said; member states needed to "do their homework" and keep up with reforms.

As her finance minister Wolfgang Schäuble, had done earlier this week, she reaffirmed the need for a financial transaction tax (Tobin tax) and tighter financial regulation, saying: "If banks take risks, they must pay for the losses – not the taxpayer".

Germany benefited from free movement within the EU but needed to be vigilant about possible abuse of immigration and social security systems, she said.