* EU leaders meet to discuss unemployment, growth
* Summit follows breakthrough on two major issues
* EU finance ministers agree on banking rescues
* Deal reached on EU's next long-term budget
By Luke Baker
BRUSSELS, June 27 European officials struck two
significant deals on banking resolution and their long-term
budget in last-ditch negotiations early on Thursday, giving EU
leaders a much needed lift before a summit on youth unemployment
After seven hours of talks that followed 18 hours of
unsuccessful bargaining last week, European Union finance
ministers finally agreed how to share the costs of future bank
failures among investors and wealthy savers.
Designed to shield European taxpayers from having to foot
the bill for rescuing troubled banks, the deal will be
implemented on a national basis from 2018, concluding more than
a year of complex, divisive discussions.
It also lays the ground for a single system to resolve
failed banks in the euro zone and the 27-nation EU, the second
stage of what policymakers call a European banking union, meant
to strengthen supervision and stability of the financial sector.
The European Commission, the EU's executive, will put
forward proposals for a single resolution mechanism next week,
although any deal on it is a long way off.
The second breakthrough, after more than seven months of
negotiation, was on a long-term budget for the European Union
from 2014 to 2020, involving nearly 1 trillion euros ($1.30
trillion) of spending on everything from agriculture to
research, roads, bridges and development aid.
Irish Prime Minister Enda Kenny, whose country holds the
EU's rotating presidency until the end of the month, helped
broker the budget deal along with the presidents of the European
Commission and the European Parliament.
The parliament, which has gained greater influence over EU
legislation in recent years, had held up approval to demand more
flexibility in how the money is spent and the right to redirect
unspent funds instead of returning surpluses to member states.
In the end, a compromise was struck to the relief of EU
officials, not least because tied up in the plan is 6 billion
euros EU leaders have earmarked for spending on programmes to
fight youth unemployment - the focus of the summit.
"This is an important day for 500 million citizens," said
Ireland's Kenny. "It is also an important day for the 26 million
who are unemployed in this union."
LOW GROWTH, NO JOB
With two major obstacles out of the way, EU leaders face a
far less awkward series of discussions during the two-day
summit, which formally begins at 1800 (1600 GMT) with a session
dedicated to unemployment, perhaps the worst legacy of the
crisis that has bedevilled the EU since 2010.
In that respect, the last summit before Germany's September
general election - a key political date in Europe's political
calendar - may prove to be one of the least contentious of the
past three years.
It is a far cry from the peak of the debt and economic
turmoil of late 2011 and early-to-mid 2012, when there was a
real threat of the euro zone collapsing.
Since then, thanks largely to a promise by the European
Central Bank last July to do whatever it takes to defend the
single currency, pressure from financial markets has eased and
EU leaders have made some progress in reforming their economies.
As well as strict new rules on budget deficits and tighter
oversight of budget spending plans by the European Commission,
steps have been taken to improve banking supervision and weaken
the link between indebted countries and problem banks.
From late next year, the European Central Bank will become
the single supervisor for virtually all the euro zone's 6,000
banks - the first stage of banking union.
The next step, the creation of a single resolution
mechanism, is likely to prove a deeply divisive and drawn out
process, with sharp differences between the views of the EU
institutions, Germany, France and other member states.
Beyond that, calls for a single system for guaranteeing bank
deposits across the euro zone look unlikely to gain ground due
to German and north European opposition, although officially the
plan remains on the table.
As well as trying to push ahead with banking union and a
broader overhaul of Europe's economic and monetary union, EU
leaders are keen to be seen to be tackling the immediate impact
of the crisis on jobs and growth.
Most of Europe has been either in recession or on the brink
of it for the past three years, while unemployment has steadily
risen. EU unemployment now stands at 11 percent, the highest
since records began, with youth unemployment a particular
problem, especially in Spain, Greece, Cyprus and Italy.
EU leaders have agreed to invest 6 billion euros in a "youth
employment initiative" that would offer people under 25 a
promise of a job, training or apprenticeship within four months
of leaving education or being unemployed.
It's a bold promise, and one that will be targeted at
regions of the EU where youth unemployment exceeds 25 percent,
including much of Greece and Spain.
Politicians and sociologists are worried that extended
unemployment for young Europeans will lead to a "lost
generation" that never gets fully incorporated into economic
life, with deep psychological and financial implications.
That will even further undermine Europe's ability to boost
growth and compete with the rest of the world, especially China
and a United States that is shifting its focus to Asia.