Fractious Summit

"We do not want any new dividing lines; we do not want a Europe divided along a North-South or an East-West line; pursuing a beggar-thy-neighbor policy is unacceptable," Czech Prime Minister Mirek Topolanek, who is to chair the meeting as current holder of the EU's rotating presidency, said on the eve of the summit.

The informal meeting of the leaders of the EU's 27 member states is officially set to discuss the bloc's response to the deepening economic crisis. It is the fourth full summit to focus on that subject since October.

But the summit's preparations were marred by a bitter row between the Czech Republic and France -- the previous holder of the presidency -- after French President Nicolas Sarkozy criticized French car makers who had shifted production to central Europe and said French auto companies should give priority to French workers.

Protectionist policies

The Czech Republic, which has become a major production center for the automotive industry and has seen sizeable investments from French car firms, attacked those demands as protectionist.

Prague responded by saying that Sunday's summit should focus on rejecting protectionism. Sarkozy said that it should rather aim at reviving the market for inter-bank lending, seen as a key to ending the ongoing financial crisis.

Diplomatic sources told the DPA news agency that Sarkozy and Topolanek were to meet in private immediately before Sunday's meeting in a bid to resolve their differences.

On Saturday, the European Commission, the EU's executive, said that France had dropped plans to fund the country's car makers on condition that they give preferential treatment to French plants and suppliers, in a move seen as likely to ease tensions.

"In particular, the loan agreements with manufacturers would not contain any condition regarding either the location of their activities or a preference for France-based suppliers," a commission statement said.

European cliques

Trouble also flared ahead of the summit after Germany hosted a meeting of the European members of the Group of 20 (G20) leading economies -- Britain, France, Germany and Italy -- on February 22.

Spain and the Netherlands were also invited to the meeting, which was meant to pave the way for a G20 summit in London on April 2.

But the inclusion of the two non-members infuriated countries such as Poland, Finland and Sweden, who saw it as a snub and warned that such actions risked breaking the EU up into cliques.

On Sunday morning, Poland is to host in Brussels a meeting of the leaders of the EU's nine members from Central and Eastern Europe.

Diplomats from the countries involved say the meeting is routine.

Germany takes lead in calling for cooperation

German Chancellor Merkel urged the EU states to work together to tackle the global economic downturn.

"We should keep in mind that the economic crisis emerged out of a massive financial crisis," Merkel told the Hamburger Abendblatt newspaper. "The European Union must work together on making sure that something like that doesn't happen again, and we need to act urgently."

With Germany, Europe's biggest economy, facing its worst recession since World War II, Merkel has long called for greater oversight of financial markets, increased transparency and tougher regulations for hedge funds, rating agencies and corporate bonus structures.

"We need a global financial architecture that is transparent," Merkel said. "The origin and value of certificates, derivatives and other securities have to be traceable."