PARIS, March 6 (Reuters) - French President Nicolas Sarkozy has said he is working well with German Chancellor Angela Merkel and predicted their deal this week on a forum for Mediterranean countries would help bring stability to the region.

"We are working hand in hand," Sarkozy said in an interview published in Le Figaro daily on Thursday.

Relations between Sarkozy and Merkel have been prickly over the past six months, with Germany particularly upset over French plans to create a Mediterranean Union which originally envisaged excluding northern European Union states.

Faced by a German veto of the project, Sarkozy was forced to accept a compromise, opening his Mediterranean group to all EU members and reviving an existing, little-loved EU initiative known as the Barcelona Process.

Sarkozy told Le Figaro that only leaders of countries bordering the Mediterranean would be able to chair the forum, with one co-president coming from the European side of the sea and one from the southern shores.

"It is vital to create a union for the Mediterranean so that the northern and southern shores create a zone of stability," he said, adding that the new look group would have an independent organisation and summits held every two years.

Germany disliked the original plan, fearing it would fragment the 27-nation European Union and diminish its own influence over the sensitive Mediterranean region.

The disagreement symbolised all that was going wrong between the two states that used to hold sway over EU decision making.

However, Sarkozy said the days when France and Germany could impose their will on the bloc were over.

"We no longer have that kind of a Europe. France and Germany always need to agree things, but in accordance with all its partners," he said. (Reporting by Crispian Balmer; editing by Elizabeth Piper)