By Luke Baker
PARIS (Reuters) - When French President Emmanuel Macron laid out a sweeping vision for eurozone reform last September, he spoke of "rebuilding Europe", with a common budget for the euro nations and a single minister to oversee it all.
The proposals he will discuss when he sits down with German Chancellor Angela Merkel outside Berlin on Tuesday will be far less ambitious, with deep differences between the two European powerhouses.
Many economists agree with Macron that fundamental reforms are needed to strengthen the eurozone and insulate the single currency -- the most potent symbol of Europe's integration -- from future crises, like the 2010-13 sovereign debt contagion that nearly tore the euro apart.
But Merkel has limited room to act due to political pressure at home, and is always at pains to ensure France and Germany aren't pushing ahead with plans that have no deep backing from the rest of the European Union.
Macron and Merkel will discuss a separate budget for the 19 countries that share the single currency but much smaller than he wanted. Then there are gaps in opinion over a fund to calm bond markets in a crisis and a backstop for the banking system.
"Things are going in the right direction, but the proposals we're getting from the Germans aren't sufficient," said a French official who acknowledged there were deep differences between the two sides.
A German official said there were still big questions about what sort of agreement Tuesday’s meeting would produce on the budget for the euro zone. The official said Merkel’s recent political troubles over migration policy could mean she is less inclined to make concessions to the French leader.
Besides the disagreement between France and Germany, it is also the nature of negotiations between the eurozone countries that grand ideas get chipped away at until a compromise is reached that satisfies all parties.
At the weekend, French Finance Minister Bruno Le Maire and his German counterpart Olaf Scholz met in Hamburg to try to resolve much of the nitty-gritty before Merkel and Macron meet.
An official involved in those negotiations said "real progress" had been made in those discussions but acknowledged that two or three key issues still needed to be worked out.
"It's now up to heads of state to see if the final leap can be taken at the meeting in Germany," the official said.
Macron is hoping he and Merkel will be able to agree in principle on the budget. But whatever they come up with is going to be much smaller than his original idea for a fund of "several points" of eurozone GDP, equivalent to hundreds of billions of euros. The most Merkel has hinted at is "tens of billions".
The French want the budget to help stabilise member states suffering short-term shocks and other imbalances. The Germans are not convinced that a stabilisation fund would work and are wary about creating anything that involves them paying in, for the money to be transferred elsewhere.
There are also gaps in interpretation over how to reshape the European Stability Mechanism, a 500 billion euro (£438.5 billion) fund set up by member states during the sovereign debt crisis to help ward off bond market turbulence.
Another point of contention is a proposed backstop to underpin eurozone banks. France and others want it implemented before 2024 but Germany has reservations about the timing and wants non-performing loans cleared from balance sheets first.
IF NOT NOW, WHEN?
While Europe's economy has picked up and there is no immediate sign of financial stress, many analysts maintain that reforms are needed to protect the single currency.
"Make no mistake, the euro desperately needs revamping," Philippe Legrain, a former adviser to the European Commission president and a senior visiting fellow at the London School of Economics' European Institute wrote of the reforms.
"The eurozone's institutional framework also needs fundamental reform in four big areas: finance, fiscal policy, economic imbalances, and democratic choice and accountability."
The reforms on the table are far from Macron's vision and a long way from winning universal backing. Even if Paris and Berlin agree a position on Tuesday, the views of the 17 other euro zone countries still have to be heard.
Historically, a shared Franco-German position has been enough to carry change in Europe.
But the Netherlands, Finland, Ireland, Denmark and four other northern EU states agreed a joint position in March. They said now is not the time for more reform and worry about proposals that create a 'two-speed' Europe, with some rules for the wider EU and others for the euro zone.
"Discussions about the future of Economic and Monetary Union should take place in an inclusive format," they said.
Macron's vision may also fall victim to other events.
Immigration is likely to dominate the summit of EU leaders. Officials have said disagreement between France, Italy, Germany, Austria, Hungary about border security and the flow of migrants from the Middle East and Africa is a bigger threat to EU cohesion than the 2010-13 debt crisis.
The window for negotiation and agreement on Macron's plans will soon close. After the summer break, there will be Bavarian elections which could be decisive for the German coalition.
In 2019, the EU's focus will shift to Britain's March exit from the union, and European Parliament elections in May, when there may be a surge in populist forces on the right and left.
(Additional reporting by Yves Clarisse and Leigh Thomas in Paris and by Andreas Rinke in Berlin; Writing by Luke Baker; editing by Anna Willard)