BRUSSELS (Reuters) — Soaring unemployment and biting austerity will top the agenda at a summit of European Union leaders starting on Thursday, with the social consequences of the region's debt crisis now seen as the greatest threat to the survival of the single currency.
The president of the European Parliament, the EU's only directly elected body, warned this week that a generation risked losing faith in Europe unless rapid steps are taken to tackle joblessness and recession.
The two-day summit will also give EU leaders a chance to discuss budget policies, with signs that France and Spain could be given more time to meet deficit goals as long as the trend of careful fiscal management is maintained.
After three years of combating a crisis that has forced the rescue of Greece, Ireland and Portugal and left Spain on the rack, the meeting is likely to be less of a crisis gathering and more of an opportunity to assess the fallout from the turmoil.
The European Central Bank's promise last year to do "whatever it takes" to protect the currency, including buying the debt of distressed countries if needed, has reassured financial markets and helped lower borrowing costs dramatically, bringing about relative calm over the past six months.
But the social impact of the crisis, including the fact that 27 million people, or 11 per cent of the EU population, is out of work, among them half those aged 15 to 24 in Spain and Greece, promises to have much deeper and longer-term repercussions.
That also forms part of the debate between austerity and growth, with growing disillusionment among centre-left governments about the harsh regime of budget cuts enforced by the EU, especially when no growth is emerging either.
Clemens Fuest, the head of Germany's ZEW economic institute, warned last month that sustained recession and high unemployment in countries such as Greece and Spain could tear the fabric of Europe apart and lead to the collapse of the euro.
"That is really the current, plausible scenario for a break up of the currency union," he told Reuters. "It may very well be that in these countries at some point the population will say 'We don't believe that things will get better.'"
At that point, he said, the EU would be left with a choice between a large-scale program of redistribution to the south of Europe, or the decision by a country to leave the euro.
"If things continue, if unemployment goes up to 30 per cent or something in Spain, there certainly is the danger that might happen," he said.
That view was seconded by Zsolt Darvas, an economist at Bruegel, a think thank that frequently informs EU policy.
"There's a very high probability that if the economic situation doesn't improve in a very strong and visible way, governments will fail and the catastrophe will come, they will leave the euro," he told Reuters.
Too little, too late
In a statement prepared ahead of the summit, EU leaders highlighted their concern about growth and unemployment and committed themselves to a "youth employment initiative" that sets aside nearly €6 billion (C$8 billion) for the worst-affected regions of the EU over the coming seven years.
"Addressing unemployment is the most important social challenge facing us," the draft summit statement reads. "It is crucial to tackle the social consequences of the crisis and fight poverty and social exclusion."
But while €6 billion may seem a relatively large sum, analysts say it is far too little to make any impact, amounting to barely €100 (C$133) for each young person without a job across the 27 countries in the European Union.
"Six billion will never be enough. I think 60 billion would not have been enough," said one senior euro zone official disappointed by the response to the problem. "It is our political response, it is not a response in substance."
European Parliament President Martin Schulz, a German socialist, suggested in an interview with Reuters that the EU needed to set aside as much as it has committed to rescuing its banks if it is to properly tackle unemployment.
Euro zone leaders have guaranteed €700 billion (C$931 billion) to mechanisms to prop up banks and rescue indebted countries.
"If we have 700 billion euros to stabilize the banking system, we must have at least as much money to stabilize the young generation in such countries," Schulz said.
"We are world champions in cuts, but we have less idea... when it comes to stimulating growth."
The two-day summit is unlikely to shift the debate dramatically on either jobs or growth, EU diplomats indicated on Wednesday, not least because of the broader complacency that has taken root among EU leaders since the ECB stepped in.
But with up to 10,000 unionists and young unemployed expected to demonstrate against austerity and the lack of jobs in the centre of Brussels ahead of the summit, potentially disrupting traffic, leaders' minds may be sharpened.