* 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 (Reuters) - 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 and growth.
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.”
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.