As Europe’s two largest economies head toward potential conflict over quashing the crisis, Merkel and her ruling party stood firm on German-led remedies, including the debt-cutting fiscal pact signed last month by all 17 euro-area leaders.

“If Mr. Hollande were to say that he wants to increase government spending and save less, he’ll lose the confidence of the financial markets,” Peter Altmaier, the parliamentary whip of Merkel’s Christian Democrats, said in an interview in Berlin today. “We will stick to our fundamental principles because there’s really no alternative.”

Germany, Europe’s biggest economy and the largest country contributor to euro-area bailouts, is facing growing resistance from traditional allies to its anti-crisis prescriptions as a $1 trillion firewall and unlimited European Central Bank loans to shore up the region’s banks fail to stop the turmoil from threatening Spain and Italy.

Hollande, who leads President Nicolas Sarkozy in polls for France’s runoff election on May 6, said yesterday that budget austerity across Europe is “bringing desperation to people” and that he’ll refocus the economy on growth if he wins.

Dutch Prime Minister Mark Rutte urged politicians today to tackle the country’s economic woes after his coalition collapsed over budget cuts, raising investor concern about his country’s ability to retain its AAA credit rating.

European ‘Credibility’

Merkel, who faces two German state elections in May and a national election in the fall of 2013, joined with Sarkozy to craft the euro area’s crisis response over the past year and backed him for re-election. She insisted on the need for austerity today, saying Europe’s “credibility” depends on reducing deficits and debt.

“We’re not saying that saving solves all problems,” she told a conference in Berlin. Still, “you can’t spend more than you take in. You can’t live your whole life this way. Everybody knows this.”

Dutch bonds rose for the first time in four days, a day after the extra yield that investors demand to hold 10-year Dutch debt instead of similar-maturity German bunds soared to the most since March 2009. The euro rose 0.3 percent to $1.3200 at 3:50 p.m. Berlin time and the Stoxx Europe 600 index gained 0.4 percent to 252.85.

ECB Role

Hollande, at a campaign stop in Brittany yesterday, renewed his criticism of German-led austerity and said the ECB needs to do more to support Europe’s growth. He says he’ll seek to add growth and investment measures to the fiscal treaty signed by Merkel, Sarkozy and 23 other EU leaders on March 2.

Merkel “is pretty resistant to pressure,” Altmaier said. France’s presidential vote and the Dutch government’s collapse don’t change the fact that “there’s no money in Europe, only deficits everywhere you look. Knowing the chancellor, she will await the outcome in France and then we’ll try to come to an understanding with the new government, whoever leads it.”

Hollande said the absence of economic growth prospects explained the record score for anti-euro National Front leader Marine Le Pen in the April 22 first round of the French presidential election.

Le Pen, the leader of the nationalist, anti-immigrant party, won 17.9 percent, or 6.4 million votes, surpassing poll estimates with the highest tally for the National Front created by her father Jean-Marie Le Pen in 1972. Hollande got 28.6 percent and Sarkozy 27.2 percent.

Anti-Austerity Front

Europe’s front against austerity has expanded in recent weeks after Spain struggled to meet EU-imposed deficit targets, election campaigns in Greece faced anti-austerity rumblings and the revolt against extra spending cuts in the traditionally budget-conscious Netherlands pushed Rutte’s coalition toward an early breakup. The Netherlands is one of four remaining AAA states in the euro area.

Views critical of austerity have boosted anti-European sentiment that plays into Le Pen’s campaign. A member of the European Parliament, she has called for France to leave the euro area and criticizes the close ties between Sarkozy and Merkel.

“A Europe that doesn’t defend its citizens is finished, a Europe that doesn’t defend its borders is finished, a Europe that opens its markets without reciprocity is finished,” Sarkozy said at a campaign rally in the Loire valley yesterday.