EU budget, banking deals boost leaders' summit

BRUSSELS (AP) -- Hard-fought deals on the European Union budget and future bank bailouts gave EU leaders a boost going into a summit Thursday, injecting fresh credibility into their efforts to end a spiral of financial and economic troubles.

Despite the progress already made Thursday, the EU's 27 leaders were still at odds over how to step up the fight against unemployment, with a German-led group calling for structural reforms and others saying more spending was needed to kickstart growth.

"I wish this to be a summit to tackle youth unemployment, a summit for growth and jobs," said French President Francois Hollande in Brussels as he headed into two days of talks with his counterparts. "Frankly, that is what Europeans expect."

Unemployment is at a record high of 11 percent for the EU and 12.2 percent for the 17 member countries that use the euro.

It is far worse for the young who have been disproportionately punished by years of crisis and recession. Latest figures show almost one in four people aged under 25 in the EU are unemployed. In Greece and Spain, that rate has it hit more than 50 percent.

"It is simply unacceptable that young people should be paying with their life chances for a crisis for which they are entirely blameless," European Parliament President Martin Schulz told the leaders.

His comments echoed President Barack Obama, who warned the EU on a visit to Germany last week of losing a generation if overly high youth unemployment can't be tackled.

But Germany, Europe's reluctant paymaster, again dashed hopes of investing any new money to ease the problem.

"The German government insists that the problems of Europe and the eurozone have to be tackled at the root and solved step by step," Chancellor Angela Merkel said ahead of the summit. Spending more won't solve the problems, she insisted.

British Prime Minister David Cameron ruled out more government aid, insisting instead that Europe must do what "we're doing in Britain, which is getting control of spending, making sure we live within our means and then making ourselves more competitive."

The summit discussions taking stock of progress on the bloc's financial and economic policies come just hours after two breakthrough deals.

Early Thursday, the heads of the European Commission and European Parliament overcame months of divisions over a new seven-year, 960 billion euro ($1.3 trillion) budget that will finance EU projects through 2020.

The agreement was rapidly backed by Parliament's main caucus leaders, setting the stage for a swift approval vote.

The budget, which includes the first cuts to EU spending in its history, determines what the EU can spend on common infrastructure like railway or road projects, farming subsidies and aid to poor countries. It's separate from national budgets — and much smaller.

Crucially, the EU budget also includes money for the employment measures that EU leaders debate at this week's summit. No budget agreement would have meant no money for those projects.

The leaders' flagship unemployment policy is a pledge made last year to spend 6 billion euros getting young people back to work, starting in 2014. Half of that money, however, is only being repackaged from other existing budget projects.

"That is not an absolutely impressive figure, but it's a start," acknowledged Luxembourg's prime minister, Jean-Claude Juncker.

Austrian Chancellor Werner Faymann was blunter, saying "we need more funds to fight youth unemployment."

"Without investment ... and pushing for stronger economic cooperation, without orienting budgets toward investment and implementing stimulus packages in specific countries, and joint ones, without that - you can't restart growth," Faymann said.

With significant stimulus policies off the table, leaders were instead touting a previously agreed capital increase for the European Investment Bank, which should boost lending to small and medium-sized companies in crisis-hit nations and foster job creation.

Thursday's deal on the budget came only hours after EU finance ministers reached a deal determining who will take losses on future bank bailouts, so that taxpayers don't have to. That is a key step toward establishing a so-called banking union for Europe, aimed at restoring stability after a tumultuous few years that have dragged down the global economy.

The set of rules determines the order in which investors and creditors will have to take losses when a bank is restructured or shut down, with a taxpayer-funded bailout being only a limited last resort.

A year ago, EU leaders pledged to tackle the eurozone's financial crisis by introducing a banking union. That would hand the supervision and rescue of banks to European institutions rather than leaving weaker member states to fend for themselves.

The project has stalled on many fronts, notably because richer countries fear they might have to pay for the banking woes of weaker countries. But Thursday's breakthrough offered new hope by establishing clear rules.

The new rules foresee for banks' creditors and shareholders to be the first to take losses. But if that isn't enough to prop up the lender, small companies and ordinary savers holding uninsured deposits worth more than 100,000 euros ($132,000) will also take a hit.

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Raf Casert and Sylvain Plazy in Brussels and Geir Moulson in Berlin contributed to this report.

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