BRUSSELS (AFP) - EU leaders wrapped up a packed two-day summit on Friday giving a green light to the opening of accession talks with Serbia as the bloc continued to expand east.

In what European president Herman Van Rompuy described as a "productive" two days, heads of state and government of the 27 countries that make up the European Union agreed to open accession talks with Serbia "by January at the latest."

At the same time, they adopted a mandate to start talks on a Stabilisation and Association Agreement with Kosovo, which may eventually pave the way for membership negotiations of its own.

EU leaders also congratulated member state Latvia on its upcoming adoption of the euro at the start of next year and welcomed Croatia's accession as 28th member on July 1.

On the first day of the meeting on Thursday, the summit had freed up 8.0 billion euros (S$13.38 billion) in a drive to bring down high unemployment among the continent's youths.

Furthermore, the leaders managed to stop Britain from throwing a spanner in the works to a deal on the bloc's next seven-year trillion-euro budget.

At a post-meeting news conference, EU Commission President Jose Manuel Barroso described the two days as a "good summit for Europe."

The decisions made "will make a difference for our economies," Barroso said, insisting that the situation in Europe was "much better than a year ago."

While the budget and unemployment were the focus of talks Thursday, the issue of EU enlargement dominated the debate on Friday.

In spite of Europe's long and debilitating crisis, eastern European states continue to bid to join the bloc of 500 million people.

Croatia will officially join at midnight on Sunday, becoming the first new arrival to the club since Bulgaria and Romania in 2007, and only the second member after Slovenia of the former Yugoslavia since its bloody break-up in the 1990s.

Van Rompuy described Croatia's accession as "truly an historic moment ... for your government, for the citizens of your country" as well as "a milestone for the region as a whole."

Croatian Prime Minister Zoran Milanovic said his country's journey to EU membership had been a long one, "with a lot of scrutiny, a lot of checks and balances, a lot of chapters."

But he vowed that Zagreb "will do anything and everything and beyond that to help and assist (...) our neighbours who are not members of the club yet," in a reference to Serbia.

Serbian premier Ivica Dacic has held out hopes of bringing his country into the EU fold within a quick four to five-year span.

In Belgrade, Dacic welcomed the decision as "final and historic" while holding out hopes the talks would begin sooner rather than later.

"We are not the most satisfied with the fact that it (starts) in January, but it is nevertheless a historic day," he was quoted as saying by Tanjug news agency.

The EU's opening to Serbia and the accession of Croatia announced at a summit on Friday are key milestones for the once war-torn Balkans but Brussels is pursuing a more cautious strategy than in past enlargements, analysts said.

British Prime Minister David Cameron saw it as "remarkable progress" that Balkan countries, which had been embroiled in a bloody war years ago, should now be lining up to join the EU.

"I think when we look across the Balkans and remember the terrible things that happened there not so long ago, it is remarkable progress that countries are now joining the European Union or are preparing to join the European Union with a sense of peace and stability," the British leader told reporters.

The decision to start accession talks with Serbia was made possible after Belgrade made a pledge to normalise relations with its former breakaway province Kosovo.

EU foreign affairs head Catherine Ashton hailed "tangible evidence of irreversible and visible progress to new normalised relations" between the two former foes.

Cameron himself had ruffled feathers going into the summit with sabre-rattling on the 3.1 billion pound annual UK rebate won in 1984 by Margaret Thatcher.

Diplomats even accused Cameron of taking the summit hostage.

But the British leader painted it in a very different light, arguing he had fended off attempts to whittle down part of the rebate.

"In this town you have to be ready for an ambush at any minute," Cameron said, adding that accounting changes in how the rebate is calculated could have cost Britain 1.5 billion pounds (1.7 billion euros, $2.3 billion).

By contrast, EU diplomats insisted it was only a technical issue at the summit and the changes affected only 50 million euros at most.