Germany's Merkel defends budget discipline drive

Germany mounted a spirited defense of its pro-austerity stance on Tuesday, with both Chancellor Angela Merkel and her foreign minister calling for a continued drive for fiscal discipline across Europe in spite of the latest bout of political uncertainty.

Investors took fright of the 17 countries that use the euro Monday on concerns that the so-called fiscal compact of strict austerity and deficit controls agreed 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.

On top of this, Spain — which is currently 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 fiscal pact in a speech in Berlin 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."

"One can talk about how we do it ... but to act as though it were an imposition to get by with what we are earning, (to say) we will carry on carting around the rucksack with debt — no one will accept it from us, in any European country," Merkel said.

"I want to say clearly, it is not the case that we say saving solves every problem but, if you at home talk about how you want to shape your life tolerably, then one of the first conditions is that you somehow get by with what you earn," she said.

Germany's budget deficit is well under the limit of 3 percent of gross domestic product that eurozone countries are supposed to observe, but its total debt amounts to 81.2 percent of GDP — well above the official 60 percent limit.

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-criticized emphasis on budget discipline and cuts.

Merkel pushed hard for other European countries to agree to the fiscal compact, designed to limit government overspending, and 25 national leaders signed it earlier this year.

Foreign Minister Guido Westerwelle said Tuesday 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 center-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.