Brussels - The head of the European Commission on Wednesday urged member states to work together to protect jobs and industry, rather than be tempted by "populist" and "protectionist" measures.

"The global financial crisis is not an excuse for protectionism: trade barriers shut out prosperity and open the gates instead to short-term economic populism," said Jose Manuel Barroso.

Barroso's warning came after the European Union executive approved guidelines on ways to mitigate the impact of the financial crisis on the European economy.

The guidelines will lay the basis for an EU-wide "comprehensive recovery plan", or stimulus package, due to be unveiled on November 26.

"Our top priority is to minimize the impact on jobs, purchasing power and prosperity of our citizens," Barroso said.

Though no new EU money is being set aside, the commission says it can help countries deal with rising unemployment and poverty by directing more community money to the worst-affected members of their societies.

The commission is also considering speeding up investment projects and handouts to member states. Needy member states can currently rely on EU cohesion funds totalling 350 billion euros (452 billion dollars) for the period 2007-2013.

Governments, meanwhile, should go ahead with plans to improve productivity and make their industries greener, he said.

"Our energy efficiency agenda, our climate change agenda, our environmental agenda are part of the solution" to creating more jobs, Barroso said.

Italy and Poland have been leading calls for the EU to water down its ambitious plans to cut greenhouse gas emissions to 20 per cent below 1990 levels by 2020.

And while conceding that the main instruments to stimulate demand and employment remain firmly in the hands of individual member states, Barroso stressed that governments should work together rather than fight for their own corner and risk undermining Europe's single market.

"On the real economy, as on the financial markets, we must swim together or we will sink together. EU cooperation is not an optional extra. It is the only way for 27 interconnected economies to weather the storm," Barroso said.

Asked about the dangers of a "subsidies race" unfolding within the EU, Barroso said: "It would be a mistake to think that the solution for the current crisis is a public subsidising of all the problems we have."

Member states are currently facing mounting requests for support from their national industries as the global economy slows down.

Earlier Wednesday, for instance, Europe's leading carmakers travelled to Brussels to ask for help in developing and selling more climate-friendly cars.

French President Nicolas Sarkozy, meanwhile, has suggested creating a "strategic investment fund" to stop foreign "predators" from snatching up French companies.

While EU rules do not explicitly forbid subsidies to industries, it says these should be targeted, temporary and proportionate. Most importantly, they should not have negative "spillover" effects on the economies of other member states, Barroso said.

Noting that EU competition rules had helped consumers save "up to 6 billion euros" a year, Barroso called on governments to join forces in helping bring down prices.

"We should re-affirm our commitment to a vibrant single market, the major driver for growth in the union," he said.

The EU's monetary affairs commissioner, Joaquin Almunia, for his part, warned those governments whose public finances are not in order to resist the temptation of spending their way out of the downturn.

"Policy errors should be punished," Almunia said. But he added that "the (Stability and Growth) pact is not only about punishment", it is also about "peer support in difficult situations."

His words came just hours after the commission had agreed to throw a 6.5-billion-euro lifeline to Hungary, whose currency and public finances are struggling to cope with the credit crunch.

The European Union is now considering more than doubling the amount of aid available to member states that run into trouble, to 25 billion euros.

Ireland and Greece are among those member states set to exceed the EU's budget deficit to gross domestic product ratio of 3 per cent this year. (dpa)