VIENNA. Dec 11: EU leaders gathered in Vienna today for a two-day summit set to be overshadowed by a bitter battle over the future of the European Union's 100-billion-dollar annual budget, reports AFP.

The summit in the Austrian capital was also expected to seek agreement on proposals to give the EU a role in defence issues. while Jobs, a trade deal with South Africa and the planned abolition of duty-free sales are also on the agenda.

German Chancellor Gerhard Schroeder, whose country takes over the six-month EU presidency from Austria on January 1. highlighted the extent of the budget row in a speech on the eve of the summit.

"We cannot and will not solve the problems of Europe with a German chequebook," Schroeder told the Lower House of Parliament, the Bundestag, on Thursday, before he travel-

ling to Vienna to meet his 14 EU colleagues.

Schroeder, who took office in October and will be attending his first EU summit as German leader, said Bonn will focus its presidency on fighting unemployment and coordinating national tax systems.

"Without more fairness over contributions, the people of our country will distance themselves from Europe Instead of being won over to further integration." Schroeder said.

Negotiations this week in Brussels made little headway in narrowing the Gulf between the EU's poorer southern states and their northern partners, who are seeking a freeze on EU spending.

The discussions have also reignited tensions over the rebate Britain receives on its contributions to Brussels, worth an average of two billion pounds (3.3 million dollars).