Deep divisions within the European Union over the rules governing the euro will be aired once more at an emergency jobs summit on Wednesday.
Italy’s energetic young prime minister, Matteo Renzi, has billed the meeting, the latest in a long series of similar gatherings, as an opportunity to begin a debate on how to reshape the bloc’s policies towards measures to bolster demand and growth, although the official agenda is supposed to be all about youth unemployment.
The initiative by an Italian government which has pledged to shake up its own labour market, is the latest salvo in an intensifying debate over the direction of the EU, the world’s largest trading bloc, at a time when its biggest economies are sliding back towards recession.
Italy, the current holder of the EU’s rotating presidency, called the summit 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.
– ‘Tangible results are small’ –
Emergency jobs summits have been a regular fixture on the EU calendar for the best part of two decades but the jury remains out on how much impact they have had.
“The tangible results of the jobs summits are small,” said Christian Schultz, an economist at private German bank Berenberg.
“Labour market policy remains a domain of member states. The European level can merely provide a little financial support or facilitate the exchange of best practices.
“At best, by attending the summits, leaders show that they care and create some pressure to deliver reforms. But if the result is only a little bit more money, they will not help those who need it.”
Some EU governments insist that job creation is essentially a matter for national governments rather than Brussels.
Renzi pushed for the summit to go ahead however, and, while British PM David Cameron will be missing, the Eurozone’s major players, German Chancellor Angela Merkel and French President Francois Hollande will be attending, along with Jose Manuel 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 euros ($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 has 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.