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ALL eyes will be on the markets today as Europe grapples with the "toughest hour since World War II".

German Chancellor Angela Merkel called for unity and made it clear that the larger economies will have to make more sacrifices to assist the unsettled countries of Greece and Italy who are in the process of forming new governments.

And she emphasised that Germany had a responsibility towards its partners as they face into the "toughest hour".

"Irish problems are Slovak problems, Greek problems are Dutch problems, and Spanish problems are our problem," Merkel said. "Our responsibility does not end at our borders."

However, in her one-hour address to the Christian Democrats (CDU), Merkel offered no new ideas for resolving the crisis that has forced bailouts of Greece, Ireland and Portugal, and has raised fears about the survival of the 17-state currency zone.

"If the euro fails then Europe fails, and we want to prevent and we will prevent this, this is what we are working for, because it is such a huge historical project," Merkel said.

There was some rally in the financial markets yesterday as a key Italian bond auction drew demand from investors.

And there are hopes that new leaders in Greece and Italy would take decisive action to breathe new life into their sick economies.

The appointments of Mario Monti in Italy and Greece's new prime minister, Lucas Papademos, were greeted with optimism and European shares recovered slightly.