BRUSSELS, June 17 (Reuters) - David Cameron was all smiles when he began his first European Union summit as Britain's prime minister on Thursday but was quick to say he would defend national interests firmly.

Cameron said he and European Commission President Jose Manuel Barroso were closely aligned after they met for breakfast talks shortly before the start of the summit on closer economic cooperation and tighter budget rules.

What he (Barroso) has just said about the importance of getting our public finances in order, that there can be no growth without confidence, and that getting our public finances in order is key to confidence, is absolutely right, he said.

And I very much agree with what he has just said, that we should be focusing on the issues of substance and not on institutional reform. That was music to my ears.

But despite the display of unity, Britain could face a battle to get its way on issues such as financial market reform, on oversight of its budget and ensuring that the push for closer economic cooperation does not involve the 16 euro zone countries alone, but all 27 EU member states.

Cameron, whose Conservative party has had to temper some of its traditional Euro-scepticism as part of a coalition government with the more pro-European Liberal Democrats, said Britain would be vigorous in defending its position in the EU.

You'll see Britain playing a very positive, a very engaged, a very active role in the European Union and at this (summit), he said.

We of course always defend our national interests as others do, and our national red lines. But we know how important it is that there is in Europe growth and confidence, and that I think is the most important issue on the agenda.

DEFENDING NATIONAL INTERESTS

Some EU member states were concerned that Britain's new government, formed after an election last month, would clash with Europe as it sought to claw back powers seen to have been lost to Brussels and took more rigid positions on new policy.

But over the past month, the coalition government has steered a central course, staying on good terms with Brussels and even impressing some member states -- for example by sending a fluent French- and German-speaking minister to meetings.

The question is how long Cameron and his government can maintain the balancing act, particularly when discussions over policy and position intensify, and when the European Parliament is involved in shaping laws on issues such as regulation.

Cameron upset some EU leaders last year by withdrawing his party from the main centre-right group.

There's a lot of relief that the new government is not as Eurosceptic as people thought it would be, said Charles Grant, the director of the Centre for European Reform think tank.

He said there was some regret that Britain was not more closely involved in dealing with the euro zone debt crisis and some other issues that are being debated.

Big questions of economic governance are being debated and Britain is ... marginalised and not really involved, he said.

Thursday's summit could go some way to showing how Britain can manage to defend its interests and shape the EU debate. But before the discussions began, Cameron mentioned some issues on which Britain would not move.

We're not a member of the euro, nor are we going to become a member of the euro, but a strong, successful euro zone is vital for Britain's national interests, he said.

United kingdom European union