Germany has defended its pro-austerity stance, with Chancellor Angela Merkel and her foreign and finance ministers calling for Europe to stick with a policy of fiscal discipline despite political uncertainty.
Financial markets in the 17 countries that use the euro were shaken on Monday on concerns that an agreement on strict deficit targets agreed to by European leaders earlier this year was beginning to unravel.
French Socialist Francois Hollande edged ahead with a narrow lead in Sunday's first round of presidential elections with a pledge to renegotiate the pact to give greater emphasis to growth over austerity. Meanwhile, the Netherlands faces early elections after its minority government collapsed over a failure to agree on austerity measures.
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On top of this, Spain - which is going through a harsh program of cuts and tax increases - announced it was entering a recession and a survey of purchasing managers across Europe pointed to a contraction in the region's economy.
Merkel didn't specifically mention the deficit agreement pact in a speech in Berlin on Tuesday, but noted that, in its early years,
West Germany ran up barely any debt. She said that "today, we have to get back to that situation."
Germany's powerful finance minister, Wolfgang Schaeuble, said he was confident that the deficit agreement "will be ratified in all countries, I have no doubt about that."
Every member of the 27-country European Union, except Britain and the Czech Republic, have signed the treaty but it has not made it through ratification by the parliaments; Ireland will hold a referendum.
Germany's budget deficit is well under the limit of three per cent of gross domestic product that eurozone countries are supposed to observe, but its total debt amounts to 81.2 per cent of GDP - well above the official 60 per cent limit agreed by the eurozone.
Stock markets in Europe Tuesday recovered some of the ground they had lost in the previous day's turmoil. However, concerns about the debt crisis were still seen in the day's Spanish and Italian bond auctions. Yields on Italian two-year bonds jumped a full percentage point to 3.36 per cent from 2.35 per cent a month earlier. Yields also spiked at a Spanish auction of short-term debt, rising to 0.634 per cent on three-month bills from 0.381 per cent and to 1.580 on six-month bills from 0.836 a month ago.
Germany and France, under incumbent President Nicolas Sarkozy, have piloted rescue efforts for other eurozone countries as the region has been swept up in a succession of debt crises over the past two years. Berlin has insisted on an often-criticised emphasis on budget discipline and cuts.
Merkel pushed hard for other European countries to agree to the fiscal agreement, designed to limit government overspending, and 25 national leaders signed it earlier this year.
Also on Tuesday, Foreign Minister Guido Westerwelle said that "we agreed on the pact after long negotiations. It is necessary."
"What we have agreed on in Europe to overcome the debt crisis is agreed and it holds. It will not be made dependent on election results," he said. "Governments act for their countries and not for themselves."
It isn't yet clear when the German Parliament will vote on the pact, which needs a two-thirds majority in Parliament.
That means it needs the support of the main centre-left opposition Social Democratic Party, which wants the government to agree to introduce a financial transaction tax - though leaders have stopped short of saying that is a condition.
Merkel's government aims to get the fiscal pact passed before the summer. Social Democrat leader Sigmar Gabriel has argued that a vote could take place later.
