I don't think it's sexual harassment. I do think it's a patronising gesture -- one that says, "Of course we're buddy-buddies, aren't we? And I can do this to you, though you couldn't (or wouldn't) do it to me."

It's an over-familiarity that impinges on the personal space of the receiver. And it either confirms or attempts to establish personal power -- especially as it's done very publicly, and therefore the receiver's freedom to reject the move is limited. Merkel went as far as she could to show her displeasure without creating an incident.

See here where in March Berlusconi pulled a similar trick on Chirac. Berlusconi was mad at Chirac at the time (over the ENEL would-be takeover of Suez) and he may be squeezing a bit hard to get a message through under cover of a supposedly folksy-friendly gesture. Chirac has to pretend it's all good fun, but you can bet that's not what he's thinking.

I don't know if Bush had any reason to feel annoyed with Merkel, but the gesture is power language, both private (very personally to Merkel, who feels the contact in a part of the body it is not usual to touch), and public (Bush is saying both: "Angela's my buddy" and "I'm her superior").