The tie-up would create the world's largest integrated defense and aerospace company with annual sales of $93 billion, but is fraught with national economic and security concerns.

"We didn't make any decisions... it wasn't expected that we would, but Germany and France will stay in close contact on this issue," German Chancellor Angela Merkel said after talks with French President Francois Hollande.

"We agreed that we will investigate the necessary issues intensively with the necessary care, and in agreement with the companies involved," she added.

Barring an extension, EADS and BAE have until October 10 under UK takeover rules to set out detailed plans for the merger. Merkel said the two leaders were aware of the deadlines.

Asked what conditions the two governments had imposed on the deal going ahead, Hollande said: "You can imagine them ... It's about employment, industrial strategy, defense activities, the interests of our respective nations."

A source close to BAE Systems said: "I don't think that (Hollande's comment) is any great surprise to anyone. We are still discussing those sorts of things with the governments concerned."

A spokesman for EADS said, "We will continue our constructive dialogue with the three governments."

Hollande appeared careful to avoid committing to forging a united position with Merkel on the future of EADS, in which the French state owns 15 percent whereas Berlin has no direct stake.

However, he pledged that the European partners would remain in "close consultation" on EADS, which is controlled by a core group of French and German public and industrial interests.

German carmaker Daimler (DAIGn.DE), French media firm Lagardere (LAGA.PA) and the French state all hold stakes.

"OLD COUPLE"

Daimler wants to sell most of its stake to the German government. But EADS, scarred by years of political in-fighting, insists there should be less government ownership rather than more as the tie-up deepens its activities in the United States.

Hollande's stated concern about "industrial strategy" is likely to ring alarm bells among BAE and EADS management. EADS Chief Executive Tom Enders has vowed to prevent any political interference in the ordinary affairs of the enlarged company.

Analysts say Germany, which has long been wary of France's traditionally more hands-on approach to industry, sees the transaction as an opportunity to rebalance its interests.

Under an agreement that led to the creation of Europe's largest aerospace group in 2000, Germany's national interests are protected by Daimler, but the car group is impatient to reduce its involvement to focus on its core automaking business.

The two leaders were speaking at a news conference in southern Germany following an event to mark the 50th anniversary of a historic speech by French leader General Charles de Gaulle.

They had initially been expected to come to a "pre-decision" on the future of EADS, but Germany said on Friday that the meeting would not be the place for joint political decisions.

The pair, whose working relationship is still under close scrutiny due to their different political stables, both said Germany and France bore a special responsibility in tackling the euro zone crisis as countries forming the heart of Europe.

"We are like an on old couple who have been together for a long time, and who sometimes lose their way," Hollande said of the Franco-German relationship. But the bond was precious, fruitful and audacious and must be revived every day, he said.

With the celebration of past Franco-German ties very much the theme of the day, both leaders called their own relationship "friendly".

One area however where both hold opposing views is on the European Commission's plans for all euro zone banks to be supervised by the European Central Bank (ECB).

Paris welcomes the move but Berlin wants only systemically relevant or cross-border banks to be policed by the ECB.

(Additional reporting by Andreas Rinke, Tim Hepher, Rhys Jones and Michelle Martin; Editing by Hugh Lawson)

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