Leaders from the EU's 27 countries on Thursday vowed to overhaul the global financial system and protect the continent's industry as the worst credit crisis in 80 years continued to hammer stocks around the world and raised fears of a recession.

"We do not have the right to miss this opportunity for reconstructing our system of finance in the 21st century," French President Nicolas Sarkozy, whose country holds the EU's six-month rotating presidency, said in Brussels on Thursday, Oct 16.

For the first time, EU leaders also addressed the fallout of the credit crunch on the real economy amid mounting fears of a deep recession.

"Of course we see that the economic crisis is there, and the question I asked was: if we can bring coordinated answers to the financial crisis, can we not bring a coordinated answer to the economic crisis?" Sarkozy said, pledging that France would take initiatives on the matter.

"Outside the financial sector, the European Council (summit) underlines its determination to take the necessary steps to support growth and jobs," the final summit statement said. "It calls on the the European Commission to make appropriate proposals before the end of the year notably to preserve the competitiveness of European industry."

International emergency summit

EU leaders are also leading calls for an international emergency summit, perhaps after US elections next month, to reshape the financial system while Washington has shown less enthusiasm.

Sarkozy said he and European Commission President Jose Manuel Barroso would travel to meet US President George W. Bush on Saturday to help prepare for a summit that would decide on a "refoundation of capitalism."

Despite the tough talk, global stock markets on Thursday continued their freefall, pummelled by signs the world's biggest economies were headed for recession after a month of financial sector turmoil.

In a statement, the EU also called for the first time for a coordinated system of financial supervision at EU level and the creation of a crisis cell to help manage the financial turmoil.

As a first step, German Chancellor Angela Merkel told reporters, national central bank governors will meet at least once a month to exchange information on financial supervision.

The heads of the European Central Bank, the EU presidency, the executive European Commission and the Eurogroup of 15 countries that share the euro currency will all take part in the financial crisis management cell.

A 2 trillion euro (2.7 trillion dollar) rescue package, initially approved by eurozone leaders at a meeting in Paris over the weekend, includes measures to safeguard private savers, guarantee interbank lending and partly nationalize shaky financial insitutions. It follows a similar initiative approved in the United States, where the global credit crunch originated.

New Bretton Woods

The agreement in Brussels came after hours of discussions that saw member states such as the Czech Republic complain that it would allow for too much state intervention.

But the real surprise in Brussels came not from the Czechs but from Brown. Despite his reputation as a eurosceptic, fellow EU leaders listened carefully to Britain's former chancellor of the exchequer as he outlined his plans for "a new Bretton Woods" that would avoid future financial breakdowns.

The 1944 Bretton Woods conference laid out the foundations of post-World War II capitalism by establishing rules for the international monetary and financial order and by creating such bodies as the International Monetary Fund (IMF).

"Global financial markets present challenges that no one nation can solve in isolation," Brown said in a letter distributed to EU heads of state and government in Brussels.

"We must therefore strengthen global cooperation and build a new global financial architecture for the years ahead - a new Bretton Woods, which recognizes the globalization of financial risk in the responsibilities of global institutions."

Brown's four-point plan envisages "a global early warning system" to prevent future financial crises from spreading, "globally accepted standards of supervision and regulation," effective "cross-border supervision" of the world's 30 largest multinationals and "cooperation and concerted action" during times of crisis.

His proposals were expected to be discussed by a forthcoming Group of Eight summit extended to include emerging powers such as China and India.

Fighting climate change

EU leaders also agreed on Thursday to reach a final deal on how to fight climate change in December after Polish threats of a veto were won over, officials said.

"The objectives remain unchanged and the calendar remains the same. It is now up to (European Commission) President (Jose Manuel) Barroso and myself to find solutions for those countries that have expressed their worries," Sarkozy said.

As the summit opened on Wednesday, Poland threatened to veto a declaration calling for a decision on the EU's proposed climate-change laws in December, saying that its concerns over the economic impact of the proposed laws had not been taken into account.

Seven other EU newcomers from Central and Eastern Europe backed that call, accusing the European Commission of not taking their earlier efforts on climate change into account. And Italy joined the revolt, arguing that it would be too expensive to implement the laws given the present financial crisis.

But on Thursday morning, the French government proposed a new resolution sticking to the December deadline but promising to take into account the "specific situation" in each member state.