"This deal between France and Germany ... sounds the death knell for the Mediterranean union," said Jacques Myard, a deputy within Sarkozy's centre-right UMP party.
Germany had threatened to veto the original plan, fearing it would fragment the 27-nation European Union and diminish its own influence over the sensitive Mediterranean region. "By succumbing to German demands, France has just lost an historic occasion to create a body that was vital for north-south relations," Myard added, revealing the strains afflicting the Franco-German partnership.
These tensions have built steadily since Sarkozy took power last May, with Germany bridling over his hyperactive style of government, his sniping at the European Central Bank, his go-it-alone foreign policy and apparent protectionist instincts.
The row over the Mediterranean Union symbolized all that was going wrong between the once dynamic duo and had threatened to trip France's six-month EU presidency, which starts in July.
"I think (this deal) is an admission by the French that they need Germany's support to have a successful EU presidency," Daniela Schwarzer, an expert on France at the German Institute for International and Security Affairs.
A driving force behind the project, Sarkozy's advisor Henri Guaino put a brave face on the compromise, saying the end result would be a marked improvement on the little-loved Barcelona Process, which is widely criticized as too bureaucratic. "The idea is to revise from top to bottom the Barcelona Process and make a partnership of equals," Guaino told Reuters. "The key thing is not to fall back into the clumsiness of Barcelona and the imbalance between the north and the south, with the south as a client of the north. We must now see how it will work from an institutional perspective."
Overcoming German doubts might prove the easiest problem. France must now convince all Mediterranean states to sign up, including Arab countries unhappy about Israel's involvement. It also needs additional funds and eye-catching projects. "The French project has got off to a bad start and its content is very uncertain," said Dorothee Schmid, a researcher in Mediterranean and Middle East Affairs at the IFRI think tank. "There is a real question mark over who will be in it ... and it is very hard to see any room for new cooperation deals. Everything has practically already been done," she added.
Sarkozy's grandiose idea was for a union that would bring peace and prosperity to a region riven with tensions. Turkey and its allies feared France's hidden agenda was to divert Ankara from its bid to join the EU, something France opposes. Germany on the other hand feared Paris planned to draw on EU funds and grab all the influence that that entailed.
Faced by a wall of suspicion, France has already curbed plans for up to nine new agencies and a Mediterranean bank. It is now likely to focus on practical projects, such as strengthening transport links and improving the environment. Despite all the setbacks, Sarkozy still hopes for a spectacular launch on July 14, France's national holiday, when he will host a major summit of EU and Mediterranean leaders.
"Symbolically, it is very important for the French to organize their own summit," said IFRI's Schmid. "There is still much to work out, but if France manages to get lots of participants, then that in itself will be a diplomatic success."