Russian President Dmitry Medvedev and German Chancellor Angela Merkel said Tuesday they were prepared to have frank talks about differences on reforms even as they deepen trade ties.

Ahead of a joint cabinet meeting in this northern city set to be dominated by growing energy ties, democratic development and the euro zone crisis, they took part in the final session of a two-day forum on the rule of law.

"In a democracy you tend to talk about the things that are not working rather than those that are," Merkel said.

"It is better to really have a row than to sweep things under the rug."

Medvedev said the forum, now in its 11th year, allowed the countries to bolster ties with open, at times combative debate.

"It is better to argue than to be silent," he said.

On a key point of contention between the countries--freedom of travel--Merkel acknowledged that Germany had been the "brake" on liberalization of visa rules between Russia and the European Union.

"We discussed this issue with President Medvedev and agreed we must develop a step-by-step plan," she said, adding that this could include exceptions for hospital workers and gradual easing of restrictions for students and tourists.

"I think if Germany begins to be a bit more open then Europe will follow suit."

The annual get-together included most of the government ministers from the two countries, whose trade relations have intensified dramatically in recent years even as Germany has criticized rights abuses in Russia .

At the end of the forum, co-chairman and former East German leader Lothar de Maiziere said both sides had seen in the 1930s the limits that dictatorships place on modernization.

"We agreed that democracy, human rights and the rule of law are necessary requirements for lasting and sustainable modernization," he told reporters, referring to work that he said still needed to be done in Russia .

Russian Deputy Prime Minister Viktor Zubkov said the talks had also covered expanding energy ties "in light of the German decision to scrap its nuclear reactors" by 2022.

Germany 's decision, sealed this month, to shutter all of its nuclear reactors within 11 years has left it scrambling to nail down other energy sources, making gas and oil-rich Russia an even more attractive partner.

Last Thursday, Russia 's state-controlled energy giant Gazprom and Germany 's number-two utilities group RWE announced exclusive negotiations on a sweeping deal to construct power plants in Europe .

The 13th so-called "government consultations" are aimed at bolstering ties between the wartime foes and advancing the modernization of Russia 's political and legal systems after the fall of communism.

Merkel and Medvedev placed wreaths at a memorial for a group of prisoners murdered by the Nazis in Hanover in May 1945 including 154 Soviet citizens, then attended a breakfast with Russian and German business executives.

The leaders are to ink a dozen economic, political and environmental agreements, oversee the signing of several business contracts and hold talks on international hotspots including North Africa and the Middle East .

This year's meeting, however, was prefaced by an embarrassing debate surrounding a democracy prize from a private German foundation that was to go to Russian Prime Minister Vladimir Putin.

Organizers announced at the weekend that they would rescind their invitation to Putin to accept the Quadriga Prize after a storm of protest in Berlin over his disputed record on human rights, media freedom and the Chechnya conflict.

Although Russia 's ambassador to Germany complained about a "very distasteful and indecent" flap, both governments insisted it would not mar the talks.

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