(BRUSSELS) - European leaders vowed on Wednesday to tackle the root causes of the global financial crisis at a two-day summit, as the continent's two biggest economies acknowledged tough times lay ahead.

Buoyed by the positive reaction of markets to bank rescue packages in the eurozone, heads of state gathered in Brussels hoped it would mark the start of a more coordinated approach to a crisis many say stems from the United States.

The financial crisis was expected to dominate the summit and is also casting a shadow over efforts to nail down an agreement on climate change which will also be debated here by the European Union's 27 leaders.

British Prime Minister Gordon Brown, whose banks rescue package was widely copied by the 15 countries that use the euro, said it was time to press for an overhaul of the world economic system now stability had returned to markets.

"I hope we will find agreement also from the whole of Europe on what needs to be done, that all countries within the EU will be a part of the programme that is necessary to stabilise the financial system and then to move the economy of Europe forward," said Brown.

"I believe that stage one has been stabilisation of the financial system," he said in a pre-summit press conference.

"I believe we must now move to stage two... to make sure that problems that develop in financial systems, problems we know originated in America, do not occur again."

After massive falls last week, Europe's stock markets have steadied since the eurozone leaders agreed a comprehensive package designed to shore up banks, including making around 1.8 trillion euros available for inter-bank loans.

Austrian Chancellor Alfred Gusenbauer said efforts to safeguard banks needed to be followed up with an economic package to avert recession.

"We now need a package for the real economy in order to avoid a crisis of unemployment," Gusenbauer said after his arrival in Brussels.

One measure likely to be debated was a proposal by the European Commission that minimum state guarantees on bank deposits should be lifted within one year to 100,000 euros (136,000 dollars) from 20,000 euros currently.

Last week, EU finance ministers already committed to raising the minimum level to 50,000 euros in an emergency effort to restore confidence in banks.

Many EU leaders feel their countries have been caught up in a financial storm whose origins lie in the United States.

Brown said it was essential regulations and institutions, such as the International Monetary Fund, are overhauled as the world economy is more interdependent than ever before.

"It becomes obvious now that we are dealing with global financial markets... what we do not have is anything other than national or regional supervision."

French leader Nicolas Sarkozy, whose country currently holds the EU presidency, called this week for a joint EU-US summit to "convince our American friends of the necessity... to review the international financial system."

Sarkozy is to meet US President George W. Bush at Camp David this weekend over the financial crisis along with EU commission chief Jose Manuel Barroso.

The summit began amid the release of more grim economic data from Germany and Britain, the EU's two biggest economies.

Speaking before the release of official figures showing unemployment jumped to an eight-year high of 5.7 percent in the three months to August, Brown indicated his government may have to refocus its employment programmes.

German Chancellor Angela Merkel meanwhile said the continent's biggest economy was heading for a slowdown, albeit a transitory one.

"Germany is strong. But Germany is going to go through a difficult period," she told parliament in a debate on her government's 480 billion euro bail-out package for the country's banks.

EU leaders were originally to focus on Europe's efforts to tackle climate change at their summit, but the issue as been eclipsed by the financial crisis.

Last year the European Union adopted the target of reducing greenhouse gas emissions by 20 percent in 2020 from 1990 levels.

Barroso urged leaders not to use the financial crisis as an excuse to sideline their commitments.

"It is important to understand that climate change is not an optional extra," he said.

European Council

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