Political backlash over BAE deal collapse Attempts to create a European giant to rival Boeing of the US collapsed on Wednesday, amid investor anger at the handling of a multibillion-euro deal that would have transformed the world's defence and aerospace industry. Government officials in London, Paris and Berlin blamed each other for not backing the €36bn tie-up between BAE Systems, the UK's defence champion, and EADS, Europe's biggest civil aerospace group, while investors accused BAE of having a muddled strategy that threatened shareholder value. There were suggestions that Angela Merkel, German chancellor, vetoed the deal on Tuesday morning. In a letter to EADS employees, chief executive Tom Enders said he had "never imagined facing such opposition to the deal, particularly not from Berlin." But one senior Berlin official added that London and Paris had never resolved a dispute over what the size of the French state shareholding of the enlarged company should be. A senior government official told the Financial Times that Ms Merkel telephoned François Hollande, French president, demanding a "quick decision" by the governments either to extend talks or pull the plug on the deal. Another person close to the negotiations said the chancellor bluntly told Mr Hollande the deal was off. Senior German officials admitted that the German government had severe reservations about its viability and strategic sense. "Clearly we were concerned about Germany being marginalised in the deal," according to one official close to the talks. It was not clear this was a good merger overall. Shares in BAE fell 1.4 per cent to 320.9p. Shares in EADS jumped 5.3 per cent to €27.48, one of its biggest one-day rises this year, but remain 7.4 per cent below their close before news of the deal leaked on September 12. Shares in BAE have been falling over the past two weeks as doubts over the deal have grown. The boost to the EADS share price was attributed to relief by big investors who feared the tie-up with the smaller UK company would hit returns. Invesco Perpetual, BAE's biggest shareholder, criticised the attempt to join a defence company with an aerospace group. Another top 10 BAE shareholder said: "We feel there has been far too much emphasis on looking for deals when shareholder value and returns can be created by developing the defence business ... We had thought [BAE] was a defence company and then we discover that it is now trying to get back into the aerospace business. We need more strategic clarity. Shareholders said they were not looking for changes in top management at this stage, although a failure to provide a clear strategic direction would likely put pressure on both Ian King and Dick Olver, BAE's chief executive and chairman. Mr King told the FT he had talked with investors since the deal failed and would continue to do so to clarify BAE's strategy, which had not changed. He said: "We will go through our strategy, our plan A, which is our core strategy, our performance against it, and the resilience of the company." The main political concern in Berlin was that jobs and production locations in Germany - particularly concentrated in Bavaria, where elections are due next year - would be cut in favour of concentration in the UK and France. Another fear was the future company would be too focused on arms exports - a sensitive issue in German politics - rather than civilian aerospace. Officials also stressed that the present Franco-German relationship worked well, while a three-way government involvement would be more complicated. In London, the British government tried to deflect brickbats from Tory backbenchers for backing the deal by arguing it had never seen the agreement as a "necessity." "This is not a question of blame," said one senior official. This was a complex merger with companies operating in a sensitive area with significant state shareholdings. It was never going to be easy.