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'Europe needs new policies, not austerity'

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The EU jobs summit is taking place in Milan on Wednesday. Photo: Patrick Hertzog/AFP
14:21 CEST+02:00
European Union leaders preparing for an emergency jobs summit in Milan on Wednesday have been told to change direction or face a political and social crisis triggered by chronic unemployment.

As some EU governments led by Italy and France seek to rebalance EU policies towards measures to bolster demand and growth, the leader of the European Trade Union Confederation (ETUC) issued a stark warning about the consequences should they fail.

Bernadette Segol said the EU's emphasis on budget deficit rules was severely hampering attempts to pull the region out of the economic morass it has been trapped in since the global financial crisis erupted in 2007-08.

"Europe's disastrous response to the crisis - austerity - has led Europe to a social crisis and to within sight of a political crisis," Segol added in an allusion to the growth of far-right and populist anti-EU political parties across the bloc.

"Europe does not need more austerity, it needs new policies."

The Milan summit was called by Italy, the current holder of the EU's rotating presidency, in response to a shock deterioration of the economic outlook in the eurozone's major economies over the summer.

The gloom was heightened on Tuesday with new data showing that German industrial output slumped in August.

The slowdown has been particularly severe in Italy, which is back in recession for the third time in seven years and beset by deflation.

France and Germany are scarcely doing better and some economists worry that the eurozone as a whole is heading for a Japan-style "lost decade" of prolonged negative or zero growth.

Deficit row

Emergency jobs summits have been a regular fixture on the EU calendar for the best part of two decades.

But with unemployment running at exceptionally high levels in some EU countries, it is unclear how many vacancies have been created by previous such meetings.

This, and a belief that job creation is essentially a matter for national governments rather than the EU Commission in Brussels, was reflected in the reluctance of a number of EU governments to endorse the Italian initiative.

Italian Prime Minister Matteo Renzi insisted on it going ahead however and the Eurozone's major players, German Chancellor Angela Merkel and French President Francois Hollande will be attending, along with Jose Barroso, the outgoing President of the European Commission.

This is against the background of tensions over the failure of Hollande's Socialist government to rein in its deficit in line with its commitments under the Stability Pact of rules to reduce public deficits and debt.

Falling tax revenues and persistently high levels of unemployment have undermined Hollande's vision of how to restore order to the nation's finances, despite a pledge to cut €50 billion ($63.0 billion) from public spending by 2017.

The French government announced last week that it "rejects austerity" and would not sanction any more cuts to ensure it meets the EU target of a public deficit of no more than three percent of annual output.

That threw down a gauntlet to the Commission which, under new powers acquired last year, can tell France to go back and revise its budget.

Such a move would be unprecedented but the Commission can ill afford to shrink from a confrontation after countries like Ireland and Spain endured several painful years of EU-enforced austerity as the price of being bailed out of the financial crisis.

The deficit row is not part of the official summit agenda, but Renzi has said he wants the meeting to address reforms under way and to debate growth initiatives.

The 39-year-old Italian leader sympathises with France's position.

But he has also indicated that Italy will not go down the same path of defying Brussels, acknowledging that capital markets would extract too high a price in return.

Instead, Renzi will use the summit to showcase his plans for a shake-up of Italy's labour market with a Jobs Act which he is expected to put to a confidence vote in parliament this week.

Away from the politicking, the main focus of the summit is supposed to be youth unemployment.

On the table is a proposal to free up six billion euros of EU funding to help national governments fund guaranteed activity for 15-24 year olds who have not been in education, employment or training for four months.

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