EU strikes 2 major deals, stumbles on unemployment

BRUSSELS (AP) ? The past week has seen a rare flurry of activity in the European Union. Two major deals have been brokered ? a ?960 billion ($1.3 trillion) budget for the 27-country bloc and a system for rescuing banks without making taxpayers foot the bill. But the leaders from the 27 nations achieved little progress on fighting youth unemployment and speeding up plans for a so-called banking union.

Here is a look at what progress has been made this week to overcome the bloc's economic crisis and what still needs to be done:

PROGRESS: A 960 EURO BILLION BUDGET TO FUND EU PROJECTS.

The blueprint for the 2014-2020 budget includes the bloc's first-ever spending cuts, as many of its countries are in recession and struggling to reduce their national debt.

Separate from national finances, the EU budget funds everything from joint infrastructure projects and farming subsidies to development aid, research and employment measures.

The seven-year plan was brokered early Thursday after months of infighting between the European Parliament and governments. An EU summit of leaders in Brussels then endorsed the compromise, sending it to Parliament for a formal vote next Wednesday.

DEADLOCK: NO NEW INITIATIVES TO TACKLE RECORD UNEMPLOYMENT

Unemployment is at an all-time high of 11 percent for the EU, which forms the world's largest economy, and stands at 12.2 percent for the group of 17 EU countries that use the euro.

The plight is worse for the young, with almost one in four people aged under 25 without a job. In crisis-hit Greece and Spain, that rate is more than 50 percent.

EU leaders agreed to speed up spending up to 6 billion euros ? about 0.05 percent of the bloc's annual output of 13 trillion euros ? to fight youth unemployment starting next year. However, they had announced that step since last year, and half of the money is only repackaged from other budget positions.

Analysts have warned that the step will make little to no difference, and European Parliament President Martin Schulz called it a "drop in the ocean."

Leaders also called on the bloc's European Investment Bank to kick-start investment and job creation by boosting lending to small and medium-sized firms by up to 150 billion euros through until 2015. The increase in lending is made possible by a capital increase decided last year.

PROGRESS: NEW EU RULES MAKE SURE TAXPAYERS WON'T FOOT THE BILL FOR BANK FAILURES

In the small hours of Thursday morning, European finance ministers reached a compromise on rules enshrining that bank rescues will be primarily funded by the banks' shareholders and creditors, with taxpayer money only a last resort. The new rules create certainty for investors and strengthen Europe's banking system.

The decision draws on the lesson of the 2008-2009 financial crisis when several European governments had to pump dozens of billions of taxpayers' money into their banks to stop the financial system from collapsing.

If a bank fails, losses will be forced on its shareholders, creditors and holders of uninsured deposits worth more than 100,000 euros to cover 8 percent of a bank's total liabilities. Then the government can chip in, as much as another 5 percent of liabilities ? but no more.

DEADLOCK: LONG WAY STILL TO GO ON THE BANKING UNION

Analysts say restoring confidence in Europe's highly fragmented banking sector is one of the key policies to turn the tide on the 17-nation eurozone's debt crisis.

The plan was first endorsed by EU leaders a year ago when markets were worried that Spain ? like Greece, Ireland and Portugal before ? might be forced to seek a full-blown bailout to stay afloat after pumping billions into its ailing banks.

The plan consists of three main pillars: Centralized oversight of big banks anchored at the European Central Bank, a central authority able to prop up or wind down ailing banks, and a jointly guaranteed deposit insurance.

The ECB's oversight is due to be operational late next year, but progress on other fronts has been slow since some countries have started back-pedaling on last year's pledges. Investors no longer feared an imminent breakup of the currency zone following an ECB pledge to do whatever it takes to preserve the euro.

Thursday's agreement on rules for bank failures was a step toward establishing a joint bank resolution authority, but Germany and others seek to delay further progress on that issue and on a joint deposit insurance scheme. The EU summit showed complacency on the matter, making no progress, while pledging to discuss further steps in the fall.

Luxembourg's Prime Minister Jean-Claude Juncker acknowledged that it appears leaders "have bid farewell to the somewhat further reaching ideas." Leaving the EU summit, he added "I would have wished for a little more forward-looking dynamic, not a dynamic of stagnation."

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Follow Juergen Baetz on Twitter at http://www.twitter.com/jbaetz

Source: http://news.yahoo.com/eu-strikes-2-major-deals-stumbles-unemployment-130557260.html

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