Italian Prime Minister Mario Monti warned the European Union on Friday not to let divisions over managing its debt crisis blow up into serious splits, and President Nicolas Sarkozy warned that a euro collapse could trigger instability.

Sarkozy, who met Monti in Paris ahead of his talks in Berlin on Monday with German Chancellor Angela Merkel, said Rome and Paris shared a perfectly identical view on Europe's future and on how the crisis of confidence in the bloc should be resolved.

Monti, a respected technocrat, has been warmly embraced by the French and German leaders since he took over from Silvio Berlusconi in November and pledged to turn his crisis-hit country around.

The heads of the top three euro zone economies are now striving to achieve closer fiscal integration in Europe and convince the world they can stem a devastating debt crisis.

Sarkozy said he and Merkel would meet with Monti in Italy on January 20th, ahead of a January 23 EU finance ministers meeting and a January 30 EU leaders summit, with the bloc under pressure to flesh out an accord reached last month by all member states barring Britain for a new treaty incorporating a fiscal compact.

I think that the main danger is the birth and development of a basic failure of understanding between populations and member states and the return of prejudices between the north and south of Europe, old and new member states, with the potential for very, very great divisions, Monti said in Paris.

Monti told an international financial conference that European institutions must build up sufficient means to dispel any doubts among investors over the solidity of the euro.

Sarkozy went even further, saying that a collapse of the single currency could endanger peace in Europe.

We do not have the right to drop Europe, we do not have the right to let the euro be destroyed. The euro is the heart of Europe. If the euro is destroyed, it's the whole of Europe that goes up in smoke, Sarkozy said, following talks with Monti at his presidential palace.

If Europe goes up in smoke it's the peace of our continent that will be one day or another be called into question.

The French leader said it was imperative that Europe take the right decisions. In a possible reference to the European Central Bank, he said: To face up to this crisis of confidence, all the institutions of Europe must take fulfill their responsibilities, as each member state of the zone has been obliged to do.

Monti repeated a call for the EU not to neglect policies to stimulate economic growth, even as it keeps up a drive to control public finances. He reiterated that Italy was on course for a balanced budget by 2013 with a primary surplus, excluding interest rate payments, of 5 percent.

Monti also voiced his support for a fresh push by Sarkozy to create a financial transaction tax, but he said that Italy did not support countries implementing such a measure unilaterally.

The French government said earlier that it was ready to push ahead with a so-called Tobin tax even without EU partners like Germany on board. Britain is one of several countries that strongly opposes the tax idea.

(Writing by Catherine Bremer; editing by Ron Askew)