The EU has more than 23 million unemployed people and there are fears that wide-ranging budget cuts will harm enterprise and training.

Cuts need to be "smart" - well-targeted - to allow room for future growth, the European Commission says.

Most member states - and not the UK - are expected to sign up to a new budget treaty, or "fiscal compact".

The goal is much closer co-ordination of budget policy in the 17-nation eurozone.

Diplomatic wrangling continues over the influence of non-eurozone countries in the new institutional set-up.

The UK opted out, in a blaze of publicity last month, but did secure observer status in the discussions.

Poland is insisting that it and other countries preparing to join the euro should be fully involved in the eurozone negotiations. 

Currently the draft treaty says signatories will hold summits at least twice a year. The attendance of non-euro countries is left to the discretion of the summit president, with the words "will invite when appropriate and at least once a year".

The Czech Republic may delay joining the treaty because of a split in its ruling coalition and the Republic of Ireland may decide it has to put it to a referendum.

While France may be content with a eurozone-only membership, Germany is keen to include countries like Denmark, Poland and Sweden, not yet in the euro.

The Brussels summit coincided with a general strike in Belgium in protest at recent austerity measures, which has brought most of the city's transport system to a standstill and disrupted international trains and flights.

Staff were asked to arrive for the 14:00 (13:00 GMT) summit at 05:30 to avoid the disruption.

Firewall bid

The summit comes a day after French President Nicolas Sarkozy announced a 0.1% tax on financial transactions. 

The tax is part of a package of measures to promote growth and create jobs, and will be implemented in August regardless of whether other countries do the same.

Greece remains a big question mark hanging over this summit. Complex negotiations with private creditors have not yet produced a deal to prevent Greece defaulting.

The European Commission says it is confident a deal will be reached within days. But Greece could run out of money as early as mid-February.

Private investors are being asked to take a 50% "haircut" (loss) on their Greek bonds in a complex bond swap, with the aim of cutting Greece's debt to 120% of gross domestic product by 2020.

A deal is crucial for the EU and International Monetary Fund to grant a long-awaited 130bn-euro (£109bn; $172bn) second bailout for Greece.

In an interview for the Wall Street Journal on Monday, German Finance Minister Wolfgang Schaeuble said only radical reforms in Greece could trigger the release of the funds. 

"Unless Greece implements the necessary decisions and doesn't just announce them… there's no amount of money that can solve the problem," he said.

The atmosphere remained tense at the weekend with a row over a leaked German proposal to put an EU budget commissioner with veto powers in charge of Greek taxes and spending.

Greece rejected the proposal outright, but its EU partners remain alarmed by its failure to meet tough fiscal targets.

Arriving at the summit, German Chancellor Angela Merkel played down the idea of an EU overseer for the Greek budget, calling it "a debate we should not be having".

She said Europe had to support Greece in its reform efforts, "but that will only work if Greece and all other states discuss this together.''

The EU is trying to put in place a bigger, more resistant "firewall" to prevent contagion spreading from Greece.

The eurozone plans to launch a 500bn-euro permanent bailout fund - the European Stability Mechanism (ESM) - in July, a year earlier than first planned. It is expected to get the final go-ahead at the summit. The UK will not contribute to it.

The existing temporary fund - the European Financial Stability Facility (EFSF) - is reckoned to be worth about 300bn euros and it ends next year. Some experts say it should be combined with the ESM, rather than running in parallel. 

Italy alone needs to refinance more than 300bn euros of debt this year and there are many voices urging the European Central Bank to boost the firewall to at least 1tn euros.

Recession clouds make it a gloomy start to this year's EU summits. But the European Commission says 82bn euros of EU money is available for countries to spend on projects to boost jobs and growth.

EU leaders will exchange views on how best to tackle youth unemployment and support small and medium-sized enterprises (SMEs), many of which complain of excessive administrative costs imposed by Brussels.