Prime Minister Reinfeldt underlined in a press conference at government offices on Monday afternoon that Russia must meet its ceasefire commitments and withdraw completely from Georgia - "anything else would be unacceptable," he said.
But Reinfeldt also stressed the importance of developing contacts with Russia.
"We can see authoritarian tendencies, but we are at the same time building trade and other links with Russia to hold the avenues open to building a better relationship."
Chancellor Merkel highlighted principles of self-determination when asked whether the eventual Nato membership of Georgia and Ukraine would push the already tense relationship with Russia into open conflict.
"Individual, independent countries must be able to enter into agreements with other countries without the interference of a third party...I believe in dialogue to solve conflicts."
Reinfeldt told the press conference that he was thankful for Germany`s support for the Baltic Sea Initiative, a forum for improving competitiveness in the region, and looked forward to the EU showing leadership on the issue.
"It is now a fact that the Baltic Sea is surrounded by EU member states and is therefore an issue that affects the whole of the EU," Reinfeldt pointed out.
Merkel answered several questions about Germany`s relationship with Russia in general, and the Baltic Sea gas pipeline, which will link the countries, in particular.
"That we have economic connections is no secret. We can not however disregard our values. There is a six point plan agreed with Russia that we both have to follow," Merkel pointed out.
Merkel underlined that the pipeline was a European project and that the Swedish government had accepted the process - a point which the leaders were set to discuss in further talks later today.
Reinfeldt stated that an international agreement on energy and climate issues was perhaps the biggest challenge facing Sweden when the country assumes the presidency of the EU in July 2009.
On the subject of whether Sweden would follow a process similar to Finland`s and move towards full Nato membership, Reinfeldt observed that the countries tended to follow each other on these issues.
At the same time Reinfeldt stressed that it was for the Swedish parliament to decide and that the opposition Social Democrats should be part of that process. Reinfeldt underlined that the nature of Sweden`s relationship to Nato had changed dramatically since the Cold War.
Prime Minister Reinfeldt and Chancellor Merkel underlined the spirit of cooperation between the countries and pledged to continue their discussions in Harpsund on Monday evening.
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