After a phone conversation with Italian Prime Minister Silvio Berlusconi Sunday, Merkel said she has "full confidence" the Italian government "will pass exactly this kind of budget," EUobserver.com reported.
"Italy must itself send an important signal by agreeing on a budget that meets the need for frugality and consolidation," Merkel said during a news conference in Berlin before a meeting of European Union ministers in Brussels.
Italian bonds went through a so-called "Black Friday" after Berlusconi's criticism of his finance minister and a corruption scandal that bubbled up on top of market concerns of Greek debt crisis.
Italy's debt ratio is second only to Greece in the eurozone, EUobserver.com reported.
Italian leaders vowed to give financial markets a strong message that the country's debt-cutting measure will be approved as soon as possible and will accomplish what needs to be done, ANSA reported.
"We'll send the markets a strong signal," Economy Minister Giulio Tremonti said Monday. "The austerity package will be approved within a week."
EU leaders had hoped a second bailout for Greece could be completed by fall, but the Italian crisis increased the sense of urgency.
"Germany and all euro partners are steadfastly determined to defend the stability of the euro," Merkel said. "Regarding Greece, I would like to say it must get a new program very quickly, within a very short time frame."
EU ministers at the beginning of the eurozone meeting also said the Italian crisis would hasten negotiations on the second Greek bailout plan in a bid to stop the debt crisis from spreading.