BRUSSELS (AP) — A hard-fought deal on how to pay for future bank bailouts gave European Union leaders a boost going into a summit Thursday, injecting credibility into their efforts to end the spiral of financial and economic troubles.
But other challenges await the 27 EU leaders, who will hold talks in Brussels through Friday.
Unemployment is at a record high across the bloc, particularly for the young, who have been disproportionately punished by years of crisis and recession. Germany has dashed hopes of investing any new money to ease the problem.
Meanwhile, a growing dispute between France and the EU leadership in Brussels is highlighting divisions between Europeans and their decision-makers.
The EU leaders will take stock of progress on the bloc's financial and economic policies just hours after their finance ministers reached a breakthrough, middle-of-the-night deal determining who will pay for future bank bailouts, so that taxpayers don't have to.
This is a key step toward establishing a so-called banking union for Europe, aimed at restoring stability after a tumultuous few years that have dragged down the global economy.
The set of rules determines the order in which investors and creditors will have to take losses when a bank is restructured or shut down, with a taxpayer-funded bailout being only a limited last resort.
"That's a major shift from the public means, from the taxpayer if you will, back to the financial sector itself which will now become for a very, very large extent responsible for dealing with its own problems," said Dutch Finance Minister Jeroen Dijsselbloem.
A year ago, EU leaders pledged to tackle the eurozone's financial crisis by introducing a banking union. That would hand the supervision and rescue of banks to European institutions rather than leaving weaker member states to fend for themselves.
The project has stalled on many fronts, notably because richer countries fear they might have to pay for the banking woes of weaker countries. But Thursday's breakthrough offered new hope by establishing clear rules.
Following the 2008-2009 financial crisis, countries like Ireland, Britain and Germany each had to pump dozens of billions of fresh capital into ailing banks to avoid the financial system from collapsing.
To avoid that happening again, the new rules foresee for banks' creditors and shareholders to be the first to take losses. But if that isn't enough to prop up the lender, small companies and ordinary savers holding uninsured deposits worth more than 100,000 euros ($132,000) will also take a hit, officials said.
Those forced losses will go as high as 8 percent of a bank's total liabilities, only then would national governments kick in and top it up with a bailout possibly worth another 5 percent of the liabilities.
EU leaders are meant to focus at this summit on fighting youth unemployment — which has topped 50 percent in some of southern Europe's crisis-hit economies and affects almost one in four youth across the EU.
The flagship policy touted since last year in Brussels remains that the 27 nations, forming a 13 trillion euro economy, have pledged to use 6 billion euros for the fight against youth unemployment starting in 2014. Half the money is being repackaged from other existing budget positions.
Germany, Europe's reluctant paymaster, again made it clear before the summit that those funds won't be increased. Berlin insists that the main responsibility lies with the member states themselves, saying they have to reform their economies to encourage growth.
With stimulus policies off the table in times of belt-tightening across the bloc, leaders were instead touting a previously agreed capital increase for the European Investment Bank, which should boost lending and foster job creation.
"The employment problems in some, and in most, European nations cannot alone be solved with European taxpayers' money," a senior German government official said Wednesday. "The precondition for a successful fight against youth unemployment must happen in the respective countries through necessary reforms, including on the labor market," he added. The official spoke on condition of anonymity as he was briefing reporters about the summit's closed-door talks.
Angela Charlton and Raf Casert also contributed to this report.