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European heads of state meet to discuss economy

Video by Luke BROWN

Latest update : 2009-02-22

Heads of the UK, France, Italy, Spain, the Netherlands and Germany are meeting in Berlin on Sunday to establish a unified position for the next G20 summit to be held in London on April 2. They are likely to hit a rut on protectionist measures.

REUTERS - European leaders met in Berlin on Sunday to agree a common stance on overhauling global financial rules but their summit risked being overshadowed by concerns about the fragility of euro zone and eastern European states.

The host, German Chancellor Angela Merkel, wants the meeting to reaffirm a commitment to free trade, stronger regulation of financial markets and coordinated action to shield the bloc from the worst downturn in the postwar era.

European countries would then take this message of unity to a broader summit of G20 nations in London on April 2, showing they are serious about delivering on an action plan agreed last November in Washington to combat the financial crisis and guard against future meltdowns.

But new tensions within the single currency bloc and the financial woes of European Union members to the east have cast a cloud over the meeting in the German capital.

Ahead of the gathering, the IMF threw its weight behind the idea of a common European bond to alleviate pressure on euro states such as Ireland and Greece that are being forced to pay hefty premiums over stronger bloc members to finance their debt.

In eastern Europe, the currencies of countries such as Poland, the Czech Republic and Hungary have come under severe pressure, hitting millions across the region who have borrowed in foreign currencies such as the euro.

Germany, Europe's benchmark issuer of debt, has rejected this idea of a euro-zone bond and Merkel is keen not to let the issue hijack her summit with the leaders of Britain, France, Italy, Spain, the Netherlands, Czech Republic and Luxembourg.

All the leaders, the president of the European Commission and finance ministers and central bankers had arrived at Merkel's Chancellery by 1030 GMT and are due to hold a joint news conference at 1345 GMT.

In an interview with top-selling German newspaper Bild to be published on Monday, Italian Prime Minister Silvio Berlusconi highlighted a problem within the 10-year old currency bloc as it works to coordinate a response to the crisis.

"Europe suffers from anachronisms -- for example the fact that it was born as a monetary union but still lacks a political dimension," Berlusconi said. "The only tools to face the crisis are monetary."

Since the G20 summit in Washington late last year, recessions in Europe and the United States have deepened, forcing governments to push through massive stimulus packages.

The Berlin meeting takes place after a week of accusations of protectionism between European nations, with some of France's partners objecting to its plans to offer 6 billion euros ($7.6 billion) in state loans to domestic carmakers.

Ahead of the meeting, German officials acknowledged that differences also existed with Britain over how strictly to regulate hedge funds.

Agreement is expected on giving the International Monetary Fund and Financial Stability Forum, a body of central bankers, regulators and finance minister, new responsibilities for overseeing financial reforms and boosting the funds of the IMF.

Date created : 2009-02-22