Barroso: trust Merkel, she knows what she's doing

"What is happening in France and Portugal is not Merkel's or Germany's fault … The crisis and their problems are not a result of German policy or the fault of the EU. It is the result of excessive spending, lack of competitiveness and irresponsible trading in the financial markets," he said.

He added that Chancellor Merkel is "one of the only [leaders], if not the only leader at the European level who best understands what is going on."

Barroso's praise of Merkel comes after the ruling Socialist party in France last week attacked her in a leaked manifesto for her "selfish intransigence."

It also comes after Barroso himself two weeks ago offended German sensibility by saying EU austerity had "reached its limits."

The French Socialists later on cut the remarks on Merkel out of their paper. Barroso also tried to row back on his own comments, saying they were taken out of context.

But last Friday, the commission offered to give France two extra years to cut its deficit, reopening the debate.

For his part, French finance minister Pierre Moscovici told French radio Europe 1 on Sunday: "This is decisive. It's a turn in the history of the European project since the start of the euro."

He added: "We have witnessed the ending of a certain form of financial austerity and the end of the austerity dogma."

German finance minister Wolfgang Schaeuble - normally more hawkish than Merkel - told German media EU fiscal discipline rules should show "flexibility."

But the junior party in the German coalition - the liberal Free Democrats - hit back at France.

"In France you can see what can happen to an economy that counts on redistribution, higher taxes, shorter working times and a younger retirement age," Rainer Bruederle, the party's candidate in upcoming German elections, told a rally in Nuremburg on Sunday.

"Europe is waiting longingly for a Mitterand moment with Francois Hollande," he added, referring to a reformist former French leader and the current French President.

The Free Democrats' chairman and Merkel's economic affairs minister, Philipp Roesler, also took Barroso to task.

He told the Nuremberg event that Germany is "a good example" for Europe because it is "spending not more, but less."

"We have to … consolidate our budgets. We have to make savings," he noted.

"It's irresponsible when a President of the European Commission questions the policy of fiscal consolidation," he added.