Paris - As leaders from the four EU members of the G8 group of leading industrial nations prepared to meet Saturday in Paris to discuss ways to prop up the European finance sector, deep divisions have appeared in how to address the financial crisis.

In particular, the disagreement has provoked tensions between

France and Germany concerning their respective views of how the European Union should function.

Saturday's mini-summit was called by French President Nicolas Sarkozy in order to arrive at a common position regarding the finance crisis ahead of the October 15 EU summit and a G8 meeting to be held in November in the United States.

In addition to Sarkozy, German Chancellor Angela Merkel, British Prime Minister Gordon Brown and Italian Prime Minister Silvio Berlusconi will travel to Paris, along with European Commission head Jose Manuel Barroso, European Central Bank president Jean-Claude Trichet and the head of the Eurogroup, Jean-Claude Juncker.

Based on the disputes aired this week, discussions on Saturday should be lively, to say the least.

The controversy centers around a plan, reportedly favoured by France, to establish a 300 billion euro (415 billion dollar) fund to bail-out troubled European financial institutions, similar to the plan put forward by US Treasury Secretary Henry Paulson.

According to various media reports, the idea was first suggested to Sarkozy by Dutch Prime Minister Jan Peter Balkenende during a recent meeting, and it was immediately seconded by OECD head Angel Gurria.

Speaking in Strasbourg on Wednesday, Gurria said, "We have already seen the first troubled European banks being rescued in the United Kingdom, Belgium, the Netherlands and Germany.

"Considering the exposure of European financial institutions, we might have to start thinking of a systemic plan for Europe if things don't improve on the other side of the Atlantic. The piecemeal approach may not work in Europe."

The proposal was also supported by one of Germany's most influential financiers, Deutsche Bank head Josef Ackermann, who said that "such a plan must be available in the drawer, to be prepared for a worst-case scenario."

However, the idea was quickly rejected by Berlin, with a spokesman for Merkel saying, "I don't know anyone at the moment who is seriously proposing such a European model."

And a spokesman for Finance Minister Peter Steinbrueck said, "The federal government doesn't think such plans are good ... Tailored solutions are the better way."

The disagreement is based on diverging views of the European Union, with Germany traditionally opposing a federalist approach, especially in monetary affairs, and Sarkozy and the French favouring a more centralized Europe.

To no one's surprise, Brown supported the Germans. A spokesman for the British prime minister said that while the financial crisis had a "European dimension," individual countries wanted to come up with their own solution because it is their taxpayers' money that is at risk.

According to Brown's spokesman, Sarkozy told the British prime minister that France would not propose a massive "Europe-wide bail-out" at Saturday's mini-summit.

But Balkenende remained unfazed, saying Thursday in Paris following a meeting with Sarkozy, "It is necessary to have a common position ... What must be avoided are purely nationalistic positions."

The danger of a nationalistic approach to the crisis was made clear earlier in the week, when the Irish government decided unilaterally to guarantee all deposits in Irish-owned banks for the next two years.

To Brown's chagrin, that move has put pressure on London to offer a similar guarantee, amid signs that British consumers were switching funds to Irish banks.

British Chancellor of the Exchequer Alistair Darling made clear British concern over the move, telling Irish Finance Minister Brian Lenihan "in no uncertain terms that the scheme was a problem for the UK."

Paris and Brussels have also criticized the Irish decision, which is seen as harming competition in an already troubled banking sector.

Given such differences, the participants at Saturday's mini-summit will no doubt look for agreement on less radical solutions - such as more transparency in the banking sector, better coordination of bank and insurance-company regulators and changes to European accounting rules.