The volatile USA president made his remarks before a breakfast meeting with Nato Secretary-General Jens Stoltenberg, who has sought to downplay Mr Trump's combative tone ahead of the summit where 29 heads of state or government will come together at the alliance's new headquarters in Brussels.
Merkel said she raised issues of migration and economic development with Trump.
"I've experienced myself a part of Germany controlled by the Soviet Union and I'm very happy today that we are united in freedom as the Federal Republic of Germany and can thus say that we can determine our own policies and make our own decisions and that's very good", she said.
The US president said Berlin was a "captive to Russia" as a result of the Nord Stream II gas pipeline being constructed between Germany and Russian Federation. "I think that's very inappropriate".
She also defended Germany's contribution to an alliance which Trump says has placed too much burden on the U.S. taxpayer: "Germany does a lot for North Atlantic Treaty Organisation", she said.
"You can not imagine any American president all the way back 75 years deciding to become the Critic-in-Chief of NATO", Burns said.
She admitted that his criticism of Germany's low spending on defense was fair, but appealed to his background as a businessman to consider Germany's defense contribution in a wider light. "I think these countries have to step it up, not over a 10-year period, but immediately". "I think sometimes he can be a little too critical of the other counterparts, and I don't think he should be critical", the Utah senator said.
He added that it's "not fair to the taxpayers of the United States and we're going to make it fair".
"We're discussing military expenditure. talking about trade", Trump told reporters who were allowed in to the meeting room.
Stoltenberg said it had been appropriate and understandable for defence spending to fall after the end of the Cold War, but the alliance had now recognised the need to bring it back up, with member countries adding billions to their defence budgets.
But Mr Trump said that recent increases worth tens of billions in defence spending were not enough for Washington.
In front of television cameras, Trump continued to complain about Europe's lagging defense spending and castigated Germany for beginning construction on a second natural gas pipeline to Russian Federation.
File image of Donald Trump. He said Wednesday that last year's increases marked the largest in a generation. "If you look at it, Germany is a captive of Russian Federation, because they supply...they got rid of their coal plants, got rid of their nuclear, they're getting so much of the oil and gas from Russian Federation. He may be the only one, but that's OK with me".
Despite Russia's aggressive moves in Ukraine and confirmed election meddling in the US, the president wouldn't say before he left on Tuesday whether Putin was friend or foe.
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