At the end of their first full summit since Germany elected Gerhard Schröder's centre-left government, the leaders also said they were determined to renew their relations.

In a declaration at the end of the meeting, Chancellor Schröder and the French President, Jacques Chirac, and Prime Minister, Lionel Jospin, said European Union governments should commit themselves to binding targets for job creation.

They also said they would seek to harmonise taxes.

They said the measures were needed to prepare for the single European currency, the euro, which is being launched on 1 January.

The summit in the eastern German city of Potsdam was expected to put the spotlight on the Franco-German partnership, which has often been seen as Europe's most important and the engine behind the drive for post-war European unity.

After Mr Schröder's election victory there had been concerns that the Anglophile chancellor was nurturing closer ties with London at the expense of Paris.

"Fresh momentum" for Franco-German relations

But the summit declaration said: "On the threshold of the 21st century, we are determined to deepen these relations in the interest of European unity, and to give them fresh momentum."

However, the two countries admitted they needed further talks in order to agree a common position on reforming EU institutions.

"We plan in-depth discussions on what kind of institutional framework the Europe of tomorrow will need," the statement said.

Budget 'understanding'

One of the summit's more thorny topics was Germany's demand to lower its contribution to the EU budget.

But German Deputy Foreign Minister Günter Verheugen said that the French showed "great understanding" for the German pressure, which comes as the EU tries to streamline its budget to get ready for new members from the former Soviet bloc.