Leaders from across the EU arrive in Stockholm today for a summit where the stakes are high, says Bruno Waterfield.

As the US economy slows down with global repercussions, economic reform in Europe assumes an even greater importance for the EU's continued stability and relative economic success.

A backdrop to the meeting will be falling stock markets and the euro which has plunged to its lowest level against the dollar for three months.

But for the UK government the conference will about more than banking on continuing economic prosperity.

For Tony Blair there is a greater political game at stake.

As foot and mouth disease and election fever mount at home, the prime minister will want to show that on the international stage, at least, he is in the driving seat.

The UK's team is led by Blair, who is accompanied by the chancellor, Gordon Brown, foreign secretary, Robin Cook and troubled minister for Europe, Keith Vaz.

Blair is set to use the opportunity to mount a concerted effort to prove to the world that Britain is no basket-case, fit only for the international isolation ward.

The trip got off to a bad start after the Swedish authorities seized the food on Blair's plane and incinerated it although the prime minister will be seeking to show that it is business as usual in Britain.

Taking the lead in Stockholm and talking up Britain plc's successes and economic leadership in Europe will be important not just in international eyes but in those of the UK voter too.

Sweden, which currently holds the EU presidency, will also feel the heat this weekend. The Lisbon summit in March 2000 is widely viewed as a success, with some arguing that its impact could be more far reaching than the euro.

With European leaders deciding that economic growth should lie at the heart of the EU, Stockholm one year on will serve as the first review of the process to increasing Europe's long-term competitiveness.

Sweden will be keen to show critics, including commission president Romano Prodi, that its presidency has not been too anxious for consensus and unambitious in setting out a European vision.

As some of the larger EU member states inevitably fall out over crucial reform issues Sweden must shed its "safe but dull" tag and be ready to bang together the heads of heavy hitters like France, Germany and the UK in order to push reforms through.

Key areas for the presidency will be some of the most troublesome: those of energy liberalisation, harmonisation of financial services and progress towards an EU wide patent. Clear advances on these issues will be the criteria by which the summit will be judged - especially by business.

With progress already made on a new legislative process for the European securities market at an Ecofin council on Thursday, the Swedes were able to welcome unanimous agreement based on the previously controversial Lamfalussy report.

"With a new legislative process for the EU securities market, we can put new regulations in place within a reasonably short space of time, to the benefit of the economy and citizens," said Swedish finance minister, Bosse Ringholm.

CBI director general, Digby Jones, says that post-Lisbon 2000 "what we need now are the steps to achieving this vision to be put in place".

The CBI has identified three key objectives for Europe's leaders - ones that are shared by the British government.

It wants to see further completion of the single market and the completion of integrated market in financial services and the creation of a more flexible European labour market, including portable pensions and qualifications that are recognised across the EU.

"New technologies, new ways of working and new company structures must all be allowed to flourish. And we need a legislative framework that enables business to take advantage of new market opportunities. Stockholm should be the vehicle to help push forward this agenda. A climate of entrepreneurship in Europe can only develop when small innovative firms are freed from the burdens of tax and regulation," says Jones.

Edward Bannerman, head of the European business and economics unit at the Centre for European Reform, has singled out two crucial indicators by which the special council can be judged.

"The litmus tests of Stockholm are financial services and liberalisation of energy markets. These are the classic market access issues the EU has had trouble with for so long. It is here that Europe can illustrate it is the new world order and that Lisbon was not just a flash in the pan. The Swedish presidency must be able to bully the big states into line if the conference is to be a success," he told ePolitix.

Whilst there will be much lip service paid to Europe's social agenda, the policy vision has shifted with a fresh, very new Labour, approach in play.

The contemporary vision, shared by Sweden, the UK and Germany sees economic growth and jobs as the prerequisite partner of social cohesion. Downing Street sources express confidence in "the way these debates are developing".

"We are not adverse to the social agenda provided that, and this is one of the things we secured at Nice, it is very much towards the creation of employment and not directed towards measures that will inhibit the creation of employment," the prime minister's spokesman said.

France is set for a scrap over the issue with sharp disagreements between French employment minister, Elisabeth Guigou, and commissioner for employment and social affairs, Anna Diamantopoulou.

The French have been pushing for more EU legislation in employment prompting the commissioner's accusation that France has a "fundamental misunderstanding of what we are doing".

Speaking in an interview to European Voice, Diamantopoulou said: "Just repeating the word social all the time does not mean that we actually move social policy forward."

Distancing the commission from an overly regulatory, legislative approach she outlines a new pragmatic approach.

"I can't say the commission is for or against legislation. Legislation is one of the ways in which we can implement policies. Nowadays, we have a number of political tools," Diamantopoulou said.

But there are limits to the hands off approach. On a recent visit to the House of Commons, Diamantopoulou warned that the UK's bitter opposition to a directive on information and consultation rights for workers could not "last 100 years".

Britain may have frustrated the directive until now - having the legislation dropped from a March council of EU employment ministers and in so doing successfully delaying the issue until after an expected May general election.

But Blair will find later this summer that measures regarded by UK business as "red-tape" are regarded as "minimum social standards" elsewhere in Europe - so he can expect trouble ahead.