UPDATE 1-Germany, France to present joint euro reform proposals

* Berlin festivities on 50th anniversary of Elysee Treaty

* Merkel and Hollande to present joint euro reform plans

* Leaders say chemistry is good despite awkward start

(Recasts with quotes from news conference)

BERLIN, Jan 22 (Reuters) - The leaders of Germany and France promised to put forward common proposals to deepen Europe's economic and monetary union by May, as they put on a show of unity on the 50th anniversary of the pact that sealed their post-war reconciliation.

Angela Merkel, a conservative, and Francois Hollande, a socialist, have had an uneasy relationship since the French president swept into office eight months ago vowing to reverse German-backed austerity policies aimed at shoring up the euro.

But the two leaders, born less than a month apart in the summer of 1954, rejected the suggestion that ties between Berlin and Paris were difficult, highlighting the steps they have taken together to shore up the single currency bloc.

"It may be our best-kept secret that the chemistry actually works," said Merkel, who refused to meet with Hollande during last year's French election campaign while openly supporting his conservative opponent Nicolas Sarkozy.

Hollande pointed to the fiscal compact on budget discipline, a December deal on banking supervision and the agreement to keep Greece in the euro zone as fruits of the strong relationship between him and Merkel.

"It has not escaped you that we do not belong to the same political family. Despite that, if you look back at the past eight months, I'm very happy with what France and Germany have been able to accomplish to get the euro zone out of its crisis," he said. "If you look at the results, it's clear we're on the same wavelength."

On one of the most divisive issues between the two countries -- deeper economic and fiscal integration -- the two promised to come up with joint proposals before a sumit of EU leaders scheduled for June.

Berlin and Paris have a different vision of a closer union, with Merkel favouring tighter central controls over budgets and Hollande seeking more solidarity and risk-sharing, in the form of a big euro zone budget to deal with economic shocks.

"It is about a deeper cooperation in economic policy with the goal of social security, employment, growth and financial stability," Merkel told reporters gathered in the chancellery in Berlin for a joint news conference.

Festivities were being held in Berlin fifty years after Konrad Adenauer and Charles de Gaulle signed the Elysee Treaty that sealed the post-war friendship between the former foes.

On Monday evening Merkel and Hollande answered questions from French and German students for over an hour. On Tuesday evening, they will attend a concert at the Berlin Philharmonic.

After their news conference, the two leaders were to speak in the Reichstag building where Adolf Hitler once presided as ppart of a joint session of parliament.

In a joint declaration, they said they would encourage unions, employers and workers in their countries to establish joint working groups to make proposals on competitiveness.

They also vowed to examine closer cooperation in specific industrial areas, including renewable energy, raw materials and transport, but did not provide any details.

(Reporting by Noah Barkin, Stephen Brown, Andreas Rinks, Emmanuel Jarry, Catherine Bremer)