* France, Italy seal pact on closer economic, other ties
* Coincides with change of guard in Germany
* No realignment in Paris's priorities - French diplomat
* Testy relations improved after Draghi became Italian PM
By Crispian Balmer
ROME, Nov 26 (Reuters) - The leaders of Italy and France will sign a treaty on Friday to strengthen bilateral ties at a time when European diplomacy is being tested by the departure of German Chancellor Angela Merkel.
The Quirinale Treaty is aimed at enhancing cooperation between Paris and Rome in areas including defence, migration, the economy, culture and trade.
The signing ceremony comes shortly after a new coalition pact was agreed in Germany, ending 16 years of rule by Merkel, who was the undisputed leader of Europe and forged especially close ties with successive French leaders.
The new Berlin administration is expected to be more inward looking, especially at the start of its mandate, and both Paris and Rome are keen to deepen relations in a period clouded by economic uncertainty, the pandemic, a more assertive Russia, a rising China and a more disengaged United States.
"Macron's intention is to create a new axis with Italy, while it is in Italy's interest to hook up with the France-Germany duo," said a senior Italian diplomatic source, who declined to be named.
Originally envisaged in 2017, negotiations on the new treaty ground to a halt in 2018 when a populist government took office in Rome and clashed with Macron over immigration.
Relations hit a low in 2019 when Macron briefly recalled France's ambassador to Italy, but there has been a renaissance this year following the appointment of former European Central Bank chief Mario Draghi to lead an Italian unity government.
A French diplomatic source rejected suggestions that the new axis between the European Union's second and third largest economies represented any re-alignment of Paris's diplomatic priorities.
"We have never played a jealousy triangle with European partners. These bilateral relations, when they are strong ... complement each other," the source said.
The Quirinale Treaty, named after the Italian president's residence and loosely modelled on a 1963 Franco-German pact, is expected to lead to Paris and Rome seeking common ground ahead of EU summits, just as France already coordinates key European policy moves with Germany.
Full details of the pact have not been released but there will be special interest in sections covering economic ties and cooperation in strategic sectors.
French companies have invested heavily in Italy in recent years, but Italian politicians have accused Paris of being less forthcoming when Italian businesses seek cross-border deals.
Earlier this year, state-owned shipmaker Fincantieri's bid to take over its French peer Chantiers de l'Atlantique collapsed, thwarted by EU competition issues.
Italian officials suspected Paris actively sought to undermine the deal behind the scenes. (Editing by Gareth Jones)
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