At their first summit meeting in recent memory at which financial markets were not baying at the door, European leaders on Thursday sought to show they could confront the social cost of fighting the sovereign debt crisis, whose severity was underlined by new jobless figures that hit a euro-era high.
The infusion of some 1 trillion euros ($1.3 trillion) into eurozone banks in recent months by the European Central Bank and a provisional agreement on a second package of loans for Greece have gone a long way toward easing fears of an imminent financial crisis or even the disintegration of the common currency itself.
Final agreement on the bailout, however, was delayed as finance ministers waited to see if a related restructuring of Greek debts to private investors succeeded and if Athens fulfilled all the conditions it had agreed to.
In the meantime, with more than one in 10 workers in Europe out of a job and government budget-cutting intensifying the economic slowdown, leaders were looking for ways to reconcile the urgent need to stimulate growth with the stepped-up budget discipline required under a new “fiscal compact,” which was expected to be approved Friday.
Yet that agreement, negotiated by 25 countries at the request of Germany, was under pressure even before it had been signed as evidence mounted that a recession forecast for the eurozone this year was already worsening public finances as well as increasing unemployment.
The jobless rate in the 17 eurozone countries rose in January to 10.7 percent, from 10.6 percent in December. It reached the highest level since 1999, when the euro was introduced, according to Eurostat, the European Union’s statistics agency. Flagging economies like Italy and Greece were responsible for much of the increase. For all 27 European Union countries, the rate ticked up to 10.1 percent in January from 10.0 percent in December.
European countries nonetheless diverged widely: Spain again topped the list with a 23.3 percent jobless rate, followed by Greece, at 19.9 percent in November. That compared with 4 percent unemployment in Austria and 5 percent in the Netherlands.
Even the Netherlands, which has taken a hawkish stance on budget discipline, announced Thursday that it was losing ground. Next year’s budget shortfall will be 4.5 percent of gross domestic product, matching this year’s expected outcome, despite cuts already made that are intended to bring it down to the goal of 3 percent, according to the government planning agency.
The deficit figure, described as a “big setback” by the Dutch prime minister, Mark Rutte, will prompt difficult negotiations within his coalition government on additional austerity measures. Amadeu Altafaj Tardio, a spokesman for the European Commission, said the Netherlands had been “very vocal in supporting the reinforcement of our fiscal surveillance rules.” He added, “It is absolutely normal to think that the Netherlands will apply this same approach to its own fiscal policies.”
Others, though, are in even worse shape. On Monday, the Spanish government said its budget deficit in 2011 was 8.5 percent, well above its 6 percent goal, and asked for more time to bring the level down, something Jose Manuel Barroso, the European Commission president, said could not yet be considered.
Barroso urged political leaders to take the opportunity to focus attention on measures that could create jobs, especially for young people, like reallocating European Union funds earmarked for development.
A draft of the summit meeting’s conclusions emphasized the need for “determined action to boost growth and jobs,” and for taking care when reducing spending. There was no talk of any fiscal stimulus to lift growth. Instead, the leaders looked set to reiterate their commitment to longer-term structural measures like deepening Europe’s 500 million-person single market to new areas like services and e-commerce.
“Sustainable growth and jobs cannot be built on deficits and excessive debt levels,” the draft conclusions stated. A final text was to be considered on Friday.
Greece, which has been struggling to come to grips with a crushing debt, had hoped to get final approval from eurozone finance ministers on its second bailout, worth 130 billion euros. In a flurry of legislative activity in recent days, Greek lawmakers have passed a series of measures to meet the conditions for the rescue. The latest went through in the early hours of Thursday morning, cutting state spending on pharmaceuticals.
The finance ministers praised Greece’s progress but held off giving final approval, saying it wanted to see “a few pending implementing acts” passed in Athens and the completion of a debt restructuring deal with the country’s private creditors, which intends to cut about 100 billion euros from its load. That swap is expected to be completed in the coming weeks.
Jean-Claude Juncker, president of the Eurogroup, a forum for eurozone finance ministers, said that the ministers were looking forward to a high level of participation by private creditors in the debt exchange.
The German chancellor, Angela Merkel, said the leaders must “discuss growth – growth for Greece, but also in the European Union as a whole.” But she also highlighted the importance she attached to the new fiscal compact, the adoption of which is seen as a condition for German support for additional steps to end the debt crisis.
“This is a huge step that we’ve managed to take in a very short time,” Merkel said before the start of the meeting. “This is the first step toward a stability union, toward a political union. Further steps will follow.”
A report in the German daily Sueddeutsche Zeitung, citing unidentified government officials, said Thursday that Merkel was considering dropping her opposition to an increase in the eurozone’s firewall, or funds available for any future bailouts, because of mounting international pressure, most recently at a meeting of the Group of 20 leading economies last weekend.
A decision on that issue, originally expected at the summit meeting, has been delayed until later in March because of Germany’s reluctance to move, fearing that such a step could undermine market confidence, rather than bolster it.
Herman Van Rompuy, who was appointed Thursday to a second term as president of the European Council, hinted at his support for a stronger firewall when he told reporters that “restoring confidence in the euro zone is a growth strategy in itself.” But he added that he was “very much aware that this crisis and some remedies put social cohesion at stake. It can also damage the European idea itself.”
While officials in Brussels urged efforts to show the union could be “part of the solution,” Lucas D. Papademos, the interim Greek prime minister, made a more personal gesture, revealing that he had waived the salary that came with the job, about 7,500 euros a month, since taking office in November.
Last month the Greek president, Karolos Papoulias, whose role is largely ceremonial, waived his annual state income of around 300,000 euros to express solidarity with Greeks who have had their salaries and pensions cut.