Trieste, Italy  - Italian Prime Minister Silvio Berlusconi said Tuesday he and German Chancellor Angela Merkel favour a possible partnership between German airline Lufthansa and ailing Italian carrier Alitalia.

"We both view very favourably a collaboration between Alitalia and Lufthansa. In fact we hope it will occur," Berlusconi said during a joint news conference with Merkel in Trieste.

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 per cent stake of Alitalia for some 200 million euros (252 million dollars), 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."

Coming just three days after they both attended the Group of 20 (G20) summit in Washington on the global financial crisis, Berlusconi and Merkel on Tuesday largely focused on economic issues during their talks in the north-eastern Italian Adriatic Sea port.

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.

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

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) which is reserved to some of the largest and 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," Berlusconi said. (dpa)