My take on it is that this was a statement to appease the uglier, more xenophobic side of Merkel's party CDU (Christian Democrats) after many CDU members have made statements lately that call for good integration and acceptance of Muslim immigrants.
Federal President Christian Wulff, for example, recently repeated a statement former Minister for the Interior Wolfgang Schäuble (both CDU) had made a few years ago: "Islam is a part of Germany". Needless to say, the more traditional, right-leaning parts of that party felt the sky is falling.
Add to that that there has been an ongoing debate that the Merkel's CDU, allegedly a Christian-conservative party, has "lost its conservative profile" by moving directly into the political center in the past few years (they are all for ecology and subsidizing regenerative energies, they no longer oppose homosexual civil unions -- the "conservative" Minister for Family even said gays marrying are "living Christian values" --, they support nationalizing banks and bailouts, refuse tax cuts, start an "Islam conference" to have a dialogue with Muslim communities in Germany, yadda yadda).
Many experts suggested that genuinely conservative people no longer feel at home in the CDU, which may go so far they -- in the harmless case -- abstain from voting for the CDU, or -- worse -- finally turn to an extremist, populist right-wing party that has yet to come into existence. But hardly ever before, chances for such a party to be successful in the elections, were as good as they are today, now as the CDU has abandoned this demographic.
The Sarrazin debate a while back (I made a posting about that) shocked the CDU, because it suddenly made obvious there is a large potential for a populism that takes advantage of the abandoned right-wing attitudes (polls showed up to 18% of the people would consider voting for such a party, if it came into existence).
So this statement by Merkel, as well as similar statements by Bavarian Prime Minister Seehofer (CSU, the CDU's Bavarian sister party), are probably not much more than desperate attempts at appeasing this demographic.
Fortunately, these rhetorics have not yielded according policies yet -- and not even the rhetorics are coherently pointing to the right bottom:
Only a few sentences after Merkel made this statement about "Multikulti" and "Christian values", she again voiced Schäuble and Wulff by adding that "Islam is a part of Germany", insisting native Germans have to accept that and deal with it, and reminded that immigration is necessary (although we should look more for skilled immigrants than unskilled and poor immigrants). So even these statements sound harsher when looked at them out of context.
Not that I am justifying them, but I am not too worried. I'd rather see Merkel making such statements, but doing sound policies regarding immigration and integration, than the other way.
On a side note, the Green Party (with chairman Cem Özdemir, a 2nd generation immigrant with Turkish background) is skydiving in recent polls: Some even saw it surpassing the center-left Social Democrats (SPD), with well above 20% of the votes, which allows speculations about future Green Party chancellors. In the two states of Baden-Württemberg and Berlin, where there are elections next year, chances are very good for Green-SPD coalitions headed by the Greens, and the first Green state Prime Ministers in German history.