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Germany, France paper over euro cracks in show of unity

German Chancellor Angela Merkel (R) and French President Francois Hollande salute to each other during a private dinner in a Berlin restaura
German Chancellor Angela Merkel (R) and French President Francois Hollande salute to each other during a private dinner in a Berlin restaura

By Noah Barkin

BERLIN (Reuters) - German Chancellor Angela Merkel hosts French President Francois Hollande and his government on Tuesday for a celebration marking half a century of post-war partnership, even as their countries struggle to forge a common vision for crisis-hit Europe.

Fifty years after Konrad Adenauer and Charles de Gaulle signed the Elysee Treaty that sealed a reconciliation between the former adversaries, Berlin and Paris are determined to put on a rousing display of unity.

A meeting of both cabinets will be followed by a joint session of parliament in the Reichstag building where Adolf Hitler gave some of his most famous World War Two speeches. In the evening, the German and French leaders will attend a concert at the Berlin Philharmonic.

Merkel and Hollande, born less than a month apart in the summer of 1954, have overcome an awkward start to their relationship, complicated by her vocal support for the French president's rival in the 2012 election and his condemnation of the German chancellor's austerity policies during the campaign.

After six months of earnest handshakes, the two now kiss each other on the cheek when they meet. In recent months, Berlin and Paris have forged complex compromises on European bank supervision and reform of a politically-sensitive shareholder pact governing EADS, the parent of planemaker Airbus.

But on perhaps the biggest policy issue hanging over Europe as it struggles to emerge from its three-year old debt crisis - the drive for closer economic integration - the Franco-German motor is barely revving.

And at a time when Europe can ill afford it, both leaders are turning there attention elsewhere - Merkel to her re-election bid and Hollande to France's ailing economy and risky military intervention in Mali.

"The Franco-German conflict which has been looming for months is over closer integration," said Daniela Schwarzer, an expert on Franco-German relations at the German Institute for International and Security Affairs.

"But the closer we get to the election, the less likely it is that the Germans push for something big. And Hollande has still not said how much he is willing to do, how much sovereignty he might be ready to cede. The integration push is already losing momentum in my view."

As long as the euro crisis remains under control and markets stay calm, the two can afford not to engage on the issue. But another flare-up would raise pressure on Merkel, who preaches tighter central controls over European budgets, and Hollande, who favors more risk-sharing, to bridge their deep differences on how to push Europe forward.

The French president swept into office in May last year vowing to reverse Merkel's focus on budget consolidation in Europe, launch new growth-boosting initiatives and end the "exclusive" relationship with Germany he accused his conservative predecessor Nicolas Sarkozy of nurturing.

But his victories have been more symbolic than substantive. After a brief flirt with Italy and Spain in the second half of 2012 that spawned talk of a new anti-German southern bloc within Europe, Hollande has turned back to Berlin, keen not to be lumped too closely with the euro's troubled periphery at a time when France's own economy is wobbling and in need of reform.

"Hollande is under a great deal of pressure at home," an adviser to Merkel said. "On European issues he remains very vague. He is still in a learning process."

In Paris, there are also frustrations. The appointment of Dutch Finance Minister Jeroen Dijsselbloem - an unknown on the European scene - to the post of Eurogroup chairman was seen as an example of the kind of lowest-common-denominator compromise that gives Franco-German cooperation a bad name.

Yet officials in both capitals play down the differences between the two leaders, describing their relationship as friendly and stressing the similarities in temperament. Hollande, unlike the often hyperactive Sarkozy, is reserved and modest, like Merkel.

At a joint appearance with French and German students on Monday evening in Berlin, the two leaders talked about harmonizing corporate tax rates within Europe.

On Tuesday, their governments are due to issue a joint statement announcing a will to work on new areas of cooperation, including on youth policy, culture, energy and defense.

But both sides say little of substance will come out of the meetings in Berlin.

"Merkel and Hollande will send a political message that Germany and France will continue to work together on the construction of economic and monetary union," one official in Berlin said. "But don't expect a new dimension in bilateral cooperation."

(Additional reporting by Mark John and Catherine Bremer in Paris; Writing by Noah Barkin; Editing by Andrew Heavens)

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