A brewing row over resurgent protectionism is threatening to cloud the summit in Brussels that is -- in theory -- aimed at accelerating free-market reform in Europe's long-flagging economy.

EU leaders will gather for their traditional two-day spring economic summit focused on promoting growth and jobs in the 25-nation bloc, which fears being overtaken by growing giants such as China and India.

But on the eve of the gathering, plans emerged for a joint letter, initiated by Italy but which may be co-signed by other more pro-reform states, denouncing a new protectionist trend in some states. EU leaders and some member countries have been dismayed at recent attempts by France and Spain to stave off takeovers by foreign companies.

France, long criticized for protecting state-run enterprises, voiced diplomatic displeasure at the plans. "It's not the best way to help calm preparations for the summit," said a French source, while another diplomat added: "Rumors seem to be flying across Brussels about who is and who isn't signing."

While the United States and Japan are enjoying an economic resurgence, much of Europe is still struggling to stimulate growth, with figures for last year putting economic expansion in the euro zone at a mere 1.3 percent.

The EU, still reeling from a debilitating political crisis last year, has hoped to use the Brussels summit to energize reforms efforts aimed at making jobs regulations more flexible and increasing cross-border competition.

Fear of greater protectionism

But Europhiles, already depressed by last year's French and Dutch rejections of the EU's first-ever constitution, now lament that the bloc is drifting towards greater protectionism in national economic policymaking.

A string of cases has underlined this in recent weeks, including Spanish efforts to block a German energy giant's hostile takeover bid and French machinations to protect Suez from Italian group Enel. France is also a key opponent of plans to shake-up Europe's vast services sector, amid fears that workers from the EU's poorer ex-communist newcomer states will undercut their western European rivals.

Italy abandoned on Wednesday an attempt to rally free-marketeers in the EU to sign a letter denouncing protectionism in cross-border mergers after failing to garner any support, diplomats said.

An Italian diplomatic source told Reuters that Rome would not present the open letter at the summit because many governments did not think the initiative was appropriate.

Even governments that sympathize with its open market
principles were reluctant to back a move seen as largely driven by Prime Minister Silvio Berlusconi's beleaguered campaign for re-election.

Sweden, Finland, Ireland and the Netherlands had politely declined to sign a draft circulated by Italian Finance Minister Giulio Tremonti and even Britain, Berlusconi's closest political ally, held back while voicing sympathy.

Economic nationalism not welcome

European Commission chief Jose Manuel Barroso echoed the protectionist warning ahead of the Brussels summit. "Economic nationalism was never a solution, and it is even less a solution today," he said.

Several sources said the letter may be at least in part politically motivated, with Italian Prime Minister Silvio Berlusconi facing elections next month, in which is his main rival is former EU commission chief Romano Prodi.

There was no immediate word from Rome about the letter -- although Berlusconi's critics warned the gaffe-prone leader to avoid creating a new spectacle in Brussels. "I invite him to keep control of himself and to represent Italy in a dignified way," said Emma Bonino of Italy's Radical Party and also a former EU commissioner.

Common energy policy on the agenda

If and when the back-biting and grandstanding ends, the EU leaders will be faced with endorsing a European Commission discussion paper proposing a common energy policy.

It is hoped that there will an agreement on the proposed policy, which includes developing a strategic energy partnership with Russia, the creation of greater alignment of national energy regulators and the encouragement of investment in diversification of energy sources.

By the time the summit ends on Friday, the officials will also have debated a number of issues regarding jobs and growth in the bloc.

Job and growth issues

Among the topics to be debated are the creation of a European Institute of Technology modelled on the Massachusetts Institute of Technology in the United States, channelling investment and connecting businesses with research and innovation centers, simplifying administrative procedures for starting up a company and resolving disagreements over legislation designed to open up services to cross-border competition.