EU leaders squabbled Monday over a German plan to strip Greece of its budgetary sovereignty that has overshadowed efforts to shift the emphasis from crisis management to growth and job creation.
The idea, floated by Berlin, to strip the government in Athens of its sovereignty and give the power to make decisions on finances to a special EU commissioner, opened up fault-lines both within and outside the eurozone.
It could ultimately place in doubt bankrupt-threatened Greece's second bailout, agreed in October but bogged down amid a series of new conditions.
Arriving at the summit, German Chancellor Angela Merkel sought to temper anger over the plans that were circulated to finance ministry officials on Friday.
Without backtracking on the proposal, she said the debate should now be about "how Europe can help Greece accomplish the tasks given to it."
Greek Prime Minister Lucas Papademos entered the first EU summit of the year without saying a word, but one of his ministers has called the idea "the product of a sick imagination."
Luxembourg Prime Minister Jean-Claude Juncker slammed the proposal.
"I am strongly against the idea of imposing a commissioner with that mission only to Greece. That's not acceptable," said Juncker, who chairs the key grouping of eurozone finance ministers.
Austrian Chancellor Werner Faymann said the German proposal "doesn't achieve anything and it goes in the wrong direction."
Germany received cautious support from Swedish Prime Minister Fredrik Reinfeldt, who said Greeks "are not delivering on reforms."
Dutch Prime Minister Mark Rutte echoed: "Greece must also honour the commitments it has made with us."
Greece has been promised a second bailout of 130 billion euros ($171 billion) if it can convince private investors to write off 100 billion euros of debt.
But German Finance Minister Wolfgang Schaeuble told the Wall Street Journal that "unless Greece implements the necessary decisions and doesn't just announce them ... there's no amount of money that can solve the problem."
Former Greek premier George Papandreou, who fell under the weight of pressure last year, countered that "each country is responsible for its own policies, or we'll be undermining democracy throughout Europe."
With the country buried under a mountain of debt, Greece is seeking to wrap up a deal with private investors who have been asked to take a "haircut" worth about half the 200 billion euros owed to them.
The EU had wanted to use its New Year gathering to send out a message of optimism.
Leaders could at least point to an improved eurozone economic confidence survey and a successful debt auction for Italy, the latest in a series of reassuring bond sales.
Later, leaders were to agree a German-driven pact to toughen fiscal discipline.
A Franco-Polish row over giving non-euro nations a seat in future eurozone summits, which threatened to delay the agreement over the pact, was overcome after the two sides reached a compromise, diplomats said.
Britain opted out of the new "fiscal compact" in December, and an official said it will no longer even seek observer status in such eurozone issues.
EU President Herman Van Rompuy said in opening the talks, held amid a general strike over EU-ordered austerity for host country Belgium, that a "path to hope" was opening up.
But there are few tangibles.
European Commission chief Jose Manuel Barroso said 82 billion euros of unspent EU funds could be used to kick-start growth and job creation – but there is a catch, the money needs to be matched locally.
Stocks slid awaiting news on Greece, and Spain plunged quicker into what Brussels deems a "moderate" recession looming large over Europe.
In London, the FTSE 100 index of leading shares closed down 1.09 percent too 5,671.09 points. In Paris, the CAC-40 index shed 1.60 percent at 3,265.64 points and in Frankfurt the DAX 30 fell 1.04 percent at 6,444.45 points.
Leaders, some facing imminent re-election campaigning, must contend with an unemployment rate averaging 10 percent across the 17-nation eurozone.
They issued a statement on boosting growth in Europe, including ideas such as lowering the tax burden on employers to get more people hired, and giving all youths guaranteed options in work, training or study.
"There are no quick fixes. Our action must be determined, persistent and broad-based. We must do more to get Europe out of the crisis," the joint statement said.
EU leaders are also expected to agree on the rulebook for a new permanent rescue fund, but a discussion about whether to increase the size of the 500-billion-euro European Stability Mechanism (ESM), is to wait until March. AFP