Joining Airlines?

Italian Prime Minister Silvio Berlusconi said Tuesday he and German Chancellor Angela Merkel favor a possible partnership between German airline Lufthansa and ailing Italian carrier Alitalia.

"We both view a collaboration between Alitalia and Lufthansa very favorably. In fact we hope it will occur," Berlusconi said during a joint news conference with Merkel in Trieste after surprising his German guest with a game of hide and seek at the beginning of their meeting.

As Merkel approached to greet Berlusconi, he hid behind a column and called out "coo-coo!". Merkel then turned to him, laughed and said "Silvio!" before embracing him, according to reports.

Earlier Tuesday Italy's top financial newspaper, Il Sole 24 Ore, reported that a private Italian consortium, CAI, which is in the process of purchasing the state's controlling stake in Alitalia, was on the verge of clinching a deal with French-Dutch airline Air France-KLM.

The "imminent" deal would involve Air France-KLM buying a 20 percent stake of Alitalia for some 200 million euros ($252 million), the newspaper said without citing sources.

But Tuesday's remarks by Berlusconi suggest the matter has still to be decided. Earlier this year the Italian premier, who was then head of Italy's opposition, torpedoed a bid by Air France-KLM to buy Alitalia when he campaigned to keep the troubled flagship airline "in

Italian hands."

Focus on economy

Just three days after they both attended the Group of 20 (G20) summit in Washington on the global financial crisis, Berlusconi and Merkel largely focused on economic issues during their talks.

With both Italy and Germany sliding into recession the time has come to "face the economic crisis, but we must not forget environmental themes," Merkel said.

"We must not choose the wrong measures," the German chancellor said, adding that "European (Union) but also national assistance packages must be aimed at sectors that have a future," she added.

Germany was insisting on more flexibility in making EU structural funds available "so that the money can be spent without too much bureaucracy," Merkel said.

No interventions

As "Europe's two main manufacturing nations," Berlusconi said, Italy and Germany opposed any measures contained in a EU climate and energy packet that would negatively impact on their countries' industries.

Asked whether Italy intended to follow the example of the US, where moves are afoot to bolster that country's automobile industry, Berlusconi replied: "We don't believe such measures should be taken."

"We don't exclude them, because we first want to see how the market behaves, but at the moment no interventions are planned," Berlusconi said.

Referring to the importance of the G20, which brought together developed and emerging economies, Berlusconi said he and Merkel still believed the Group of Eight (G8) of the world's most developed nations should "continue existing."

The G8, of which Italy next year takes over the presidency and hosts its summit, should however "be enlarged to a G14 or G20 depending on the problems brought to the table," said Berlusconi,

FMs commemorate Nazi victims

Germany's Foreign Minister Frank-Walter Steinmeier on Tuesday meanwhile joined his Italian counterpart Franco Frattini in laying a commemorative wreath for the victims of a former World War II Nazi death camp near Trieste.

The German foreign minister's morning visit to the Risiera di San Sabba was seen as an attempt to mend fences with Italy. Acrimony exists between the two countries 60 years after the end of the war over demands for retribution for Nazi-era atrocities.

According to estimates, between 3,000 and 5,000 people -- mostly political prisoners -- were murdered at the camp.

"The atrocities perpetrated at Risiera di San Sabba in the name of Germany are part of our common history," Steinmeier said during the memorial ceremony. "Many are the events and the places of memory which represent the betrayal of civilization by Germany."

Steinmeier also recalled the "suffering of around 600,000 Italian soldiers" interned in German prison camps. He was referring to those imprisoned following Italy's decision in September 1943, after toppling fascist dictator Benito Mussolini's, to abandon its Axis alliance with Germany.

Joint historic commission

Frattini and Steinmeier also announced the creation of a joint Italian-German commission of historians which would research the treatment of Italian World War II prisoners in German hands.

Last month the German government rejected a verdict from a Rome court ordering Germany to pay personal damages for Nazi atrocities to match reparations already paid to Italy as a nation.

The case was filed by nine families on behalf of relatives killed when Nazi soldiers massacred 203 people at Civitella in northern Italy in June 1944. The Italian court awarded them 1 million euros ($1.3 million).

Germany is currently preparing a complaint to the International Court of Justice in the Hague to fend off further reparation claims.