ARMS SPENDING CUTS

German Chancellor Angela Merkel said on Monday that her government was studying the merger.

“We are discussing and evaluating the EADS-BAE merger plans and we are in discussions with others on this. We will give an answer within the deadlines,” Merkel told a news conference.

The project to build a company 60-percent owned by Franco-German-Spanish EADS and 40-percent by BAE would make the world’s largest arms firm ahead of Lockheed Martin and grant Europe an all-round aerospace player rivalling Boeing .

The aim is to cushion the company against cuts in defence spending and prepare for future global competition from Asia.

Under British stock market rules, the two companies have until Oct. 10 to announce whether they plan to go ahead.

The task of securing political backing is delicate after details of the plan leaked last week and a certain amount of bluff is expected on all sides, but a source close to BAE said “discussions are progressive and ongoing”.

In particular, negotiators must juggle BAE’s red lines over French government involvement with France’s determination to maintain a significant stake in a flagship industrial group.

British and French finance ministers may discuss the issue at informal talks in London on Monday.