Greece, Portugal debt problems seen certain to figure

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French President Nicolas Sarkozy and German Chancellor Angela Merkel meet on Thursday in an atmosphere of growing tension over euro zone budget stability and the future of the troubled A400M military transport project.

Although it is not on the formal agenda, the problems facing debt-ridden euro zone states like Greece or Portugal are certain to come up given the intense speculation over the prospect of a bailout led by Germany and France.

Ministers from both countries have repeatedly said Greece must sort out its own budget difficulties and officials suggested the leaders would repeat that line.

"Clearly the solution to the situation the Greeks are facing is in the hands of the Greek authorities," one said.

The meeting between the two leaders and ministers from both nations is part of a regular series of joint Franco-German government sessions and the first of its kind since Merkel's new government took office last year.

A mammoth declaration setting out the roadmap for future cooperation between the euro zone's two biggest economies is expected, including 80 measures on areas ranging from economic cooperation to education and even marriage licences.

However no separate declaration is planned on the 20 billion euro ($28.02 billion) A400M troop plane, Europe's biggest defence programme, which faces collapse unless agreement can be reached on a 2.4 billion euro funding shortfall [ID:nLDE6121C3].

Officials have played down the prospect of a major breakthrough in Paris, pointing to talks on Thursday in Berlin, where officials from buyer countries including France and Germany are negotiating with the manufacturer Airbus.

"That is where the subject will be handled first," one said.

Away from Greece and the A400M, which in different ways both underline the difficulties facing European cooperation, Paris is keen to push improved economic coordination, an area where it has traditionally been more enthusiastic than Berlin.

"We want to bring our economic analysis closer together and boost dialogue and cooperation between companies as well as employers and unions," a senior French official said.

Foreign policy and security will also come up including defence cooperation, an issue lately taken up by Britain, as well as the looming prospect of sanctions against Iran and Afghanistan, where both France and Germany have major troop contingents.

Germany has recently pledged to beef up its force with an extra 500 soldiers, while France has ruled out more combat troops but may send more trainers. However officials said there was no fundamental disagreement over strategy between the two.

Offshore tax evasion, which both Paris and Berlin have been trying to combat and where both have run into problems with the bank secrecy laws in their common neighbour Switzerland may also come up, at least on the margins of the discussions.