UK officials are hoping the meeting at St Malo in Brittany will shift the focus away from the contentious issue of "harmonising" taxes across Europe.

BBC Paris Correspondent Hugh Schofield: The government hopes defence will dominate the summit

They acknowledge the controversy triggered by German finance minister Oskar Lafontaine's call - backed by the French - to scrap national vetoes will inevitably be discussed.

But they are aiming to make defence the main topic.

In October, Mr Blair signalled a change of policy by accepting the principle of a defence role for the EU.

Tony Blair: Hoping to shift focus away from taxes

His initiative has been broadly welcomed in France, which shares a frustration about Europe's inability to match its diplomatic voice with any kind of military muscle.

Foreign Secretary Robin Cook and Defence Secretary George Robertson met counterparts in Paris on Wednesday to discuss the principles on which such a development should be based.

As well as discussion of the international financial crisis and the need to reform world systems, the countries are also expected to agree more co-operation in Africa, where both had colonies.

'Think small'

It would include sharing information, possibly putting French and UK embassies on the same sites, joint visits by ministers, and helping represent each other's interests where only one country has representation in a country.

Agreement is also expected on co-operation to boost entrepreneurship.

The UK and France both have around a million small and medium-sized firms, in each case providing around 60% of the country's employment.

The summit will seek to find ways of boosting a task force set up to study how deregulation, tax policy, access to finance and business support measures can ensure that more of those smaller firms stay in business for longer.

Mr Blair and his French opposite number, Lionel Jospin, last March established a joint task force to study regulation, tax policy, access to finance, business support and job creation.

French tax officials have visited Leicester tax office to see a pilot on helping new firms with paperwork and the UK is using a French scheme as the basis for a new tax break to promote research and development.

At St Malo, the two prime ministers will approve follow-up work including working together at EU level to promote better regulation and simpler administration, pursuing the concept of "think small first".

The two prime ministers will also discuss preparations for the Millennium, including action to tackle the Millennium Bug.