|After holding talks with Monti in Berlin on Wednesday, Merkel said reforms will 'strengthen Italy' [Reuters]
The German chancellor has said she has "great respect" for the economic changes being implemented by Italy, which is struggling to reduce its debt.
Angela Merkel made the remarks on Wednesday after meeting Mario Monti, the Italian prime minister, in the German capital, Berlin.
"As for the speed and substance of these measures, I think they will strengthen Italy, will improve its economic prospects and we have watched with great respect how quickly they have been implemented," she said.
"I think that overall, the work of the Italian government will be rewarded and I have said from the beginning that we should work very, very closely together."
For his part, Monti thanked the Italian people and parliament for what he called their "mature" response to very painful reforms.
Monti said Italy could only make progress within a more helpful European context, including cheaper borrowing.
"The European context must become more favourable, by permitting in good time a lowering of interest rates and greater integration of the EU," he said.
Uli Bruckner, a political analyst, talks to Al Jazeera about the outcome of the Merkel-Monti meeting
Italy still faces 10-year borrowing costs of around seven per cent that are widely viewed as unsustainable for an economy burdened with a debt of about 120 per cent of GDP.
"In the financial markets, high interest rates could have been justified when markets were diffident about Italian economic policy, but not anymore, especially after representatives of those same markets have said they appreciated the efforts made," Monti said.
Earlier on Wednesday, Monti complained in a newspaper interview of possible "anti-European" protests in his country if his government's reform efforts were not recognised.
Speaking in German daily Die Welt, he said: "The problem is that despite our sacrifices, we have not got anything in return from the European Union, such as a drop in interest rates.
"Unfortunately, we have to say that our reform policies have not received the recognition and appreciation in Europe that they deserve.
"If the Italian people do not soon see tangible success for their savings and reform efforts, there will be a protest against Europe, against Germany - seen as the driver of EU intolerance - and against the ECB [European Central Bank]."
No reason for fear
Monti told Merkel: "Europe no longer has to fear Italy as a possible source of contagion for the euro zone, but can count on Italy to play its proper role beside Germany and France and other countries in the drive for stability and growth."
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He confirmed that Merkel and Sarkozy would visit him in Rome on January 20 to see for themselves the reforms his government is undertaking.
In other remarks after Wednesday's meeting in Berlin, Merkel made it clear that the eurozone's chief priority at the start of 2012 is to secure a second aid package for Greece, an issue which needs to be resolved before Europe can start working out how to boost growth and jobs.
"The eurozone's first obligation this year is to resolve a second Greek programme and finalise these negotiations with the banks so that we can then concentrate on structural problems in the euro zone," she said.
She also said that Germany would be prepared if necessary to pay more capital up front into the eurozone's permanent bailout mechanism, the ESM, which is due to come on stream in the middle of the year.
The statement helped the euro recover after losses and German bund futures retreat from the day's highs.