Officials in Berlin, eager to avoid controversy, played down the significance of this meeting in Freiburg, a town of 220,000 near the French border, which comes ahead of a European Union summit in Brussels next week to discuss the EU budget.
"It's never a bad thing when France and German reach an agreement but it remains to be seen whether there will be any agreements on Friday," said German government spokesman Steffen Seibert, adding that the euro would be among the issues discussed.
"What's important is what the 27-member European Council agrees next week," he added ahead of the brief Friday meeting.
Merkel and Sarkozy are expected to issue generic pledges of support for the euro. They have also reached a unified position rejecting the creation of eurozone bonds.
Germany and France believe it is pointless at this juncture to discuss creating joint eurozone bonds (dubbed e-bonds), as proposed by Luxembourg Prime Minister and Eurogroup chief Jean-Claude Juncker, with Italian support.
Juncker, chairman of the finance ministers of the 16-nation single currency area, floated the idea of creating a euro debt instrument as a way of deterring market speculation.
"This proposal is not entirely new. It raises difficulties notably in terms of sharing costs and profits," a spokesman for Sarkozy's office told reporters on Thursday. "There is no need to discuss new propositions."
E-bonds concept
Germany was quick to attack the e-bond idea, which would tie the borrowing costs of major European economies to those of peripheral members such as Greece, Ireland and Portugal.
That would raise costs for both Germany and France.
Merkel had also poured water on eurozone bonds, saying a common euro bond would set the wrong incentives for member states that need the discipline of bond markets. It could also give her domestic headaches as Germany's constitutional court is already mulling the legality of the current bailout mechanism.
France has let Germany do most of the talking in the debate over the latest debt crisis in Europe, while trying behind the scenes to moderate Berlin's stance to a more market-friendly one.
The presidential spokesman also said France sees no pressing need to discuss topping up the existing eurozone stabilisation fund (EFSF), worth 750 billion euro, when International Monetary Fund backing is included. It was a somewhat softer position than Merkel's stance that there is no need to boost the bailout pool.
"The funds are big enough to withstand eventual demand. There is no question at the moment of increasing them," said the French official.
Merkel has taken a tough line in demanding that the private sector shares the pain of future bailouts while France has sought instead to soften Germany's stance to reassure investors about the solidarity of the single currency bloc.
While many German taxpayers are angry at the prospect of bailing out spendthrift European partners, in Freiburg there is a sense that the euro has contributed to prosperity, facilitated trade and tourism, and may well keep the peace in Europe.
Heavily bombed in World War Two and occupied by different powers through its 890-year history, Freiburg has benefited from the euro, which has "made the city more attractive for French and Swiss shoppers," said retired insurance worker Horst Steenbock.
"It certainly helps when countries have something in common because it keeps them talking and working together," he said.
"You can travel without worrying about exchange rates," said 47-year-old teacher Joachim Boskam. "It's been good for business and good for Freiburg in general, I'd say."
(EurActiv with Reuters.)
