Leaders wrestle with austerity as EU jobless fears rise

European Union leaders wrestled with German demands for strict austerity and a French-Italian push for growth-friendly spending at a summit coloured by fears that rampant unemployment is destroying the bloc, and clouded by a bailout for Cyprus, AFP reports. As thousands protested over European jobless lines stretching to 26 million, outgoing Italian premier Mario Monti o0n Thursday urged his peers to allow Italy, and other countries facing public finance pressures, to spend in order to create more jobs. Without that, he warned, there would be a voter backlash such as the one he suffered last month. A professional EU politician of many years standing in Brussels, Monti said his caretaker Italian government had done everything asked of it by the EU, but that "public support for the reforms, and worse, for the European Union, is dramatically declining." Flexibility as opposed to rigid austerity "would be the best message to counter the mounting wave of populism and disaffection with the EU," he underlined. A brash anti-austerity party won a stunning 25 percent of the vote in last month's Italian elections, a warning for German Chancellor Angela Merkel who faces a general election in September. However, Merkel's polling position has rarely been stronger, and at the close of the first session of the two-day summit talks on the economy, she said the benefit of Monti's reforms would be seen in the fullness of time. EU President Herman Van Rompuy said the leaders meeting in Brussels had "reconfirmed our overall economic strategy." Amid heavy security, the summit coincided with an anti-austerity rally nearby that organisers said drew 15,000 demonstrators, during which dozens were arrested after breaking into a building adjacent to the venue. The 17 eurozone leaders stayed on for their own talks, which wrapped up at around 1:00am (midnight GMT) Friday, joined by Dutch Finance Minister Jeroen Dijsselbloem who chairs the Eurogroup of counterparts due to meet from 1600 GMT on Friday to try and fix a multi-billion-euro bailout for Cyprus -- the fifth for an EU state since Greece first needed rescuing three years ago. Eurozone veteran Jean-Claude Juncker said on exiting the meeting that the finance ministers must fix a bailout for the near-bankrupt Cyprus government. "The Cyprus question should not just be brought closer to a solution -- it should be solved," Luxembourg Prime Minister Juncker said. "I can't imgaine that we would let the weekend pass without having solved the Cyprus problem," the recently-departed Eurogroup chairman underlined. The evening talks were also to be attended by International Monetary Fund managing director Christine Lagarde. "I do hope that by tomorrow we can negotiate and find a solution," said new Cyprus President Nicos Anastasiades. If that is a condundrum for finance ministries, French President Francois Hollande said the "only priority" leaders had to face was finding fresh ways to boost growth and get people back working. The Socialist leader has admitted his government will not be able to cut its public deficit to the EU limit of 3.0 percent of gross domestic product this year, coming in instead at 3.7 percent -- which requires another year of grace from Brussels. This, Paris is expected to get. "It's not black and white," said Van Rompuy of the economic challenges ahead. "Nuances matter," he added, citing "many 'shades of grey'." Youth unemployment is running at more than 50 percent in Greece and Spain, and Juncker had earlier warned of the risk of "a social revolution or rebellion." Among the protesters, Mads Hadberg of Denmark, a 25-year-old student, asked: "Why should the people be paying for the crisis the banks created?... People are losing jobs, health benefits, pensions -- and the rich are getting richer." On Friday morning, the EU summit will turn to the question of a call by Hollande to lift a bloc arms embargo on Syria, in order to help insurgents fighting the regime of President Bashar al-Assad. France is ready to "take its responsibilities" and supply weapons to Syria's rebels if it cannot convince its European partners to lift an arms embargo, Hollande said. The French president talked tactics beforehand with British Prime Minister David Cameron beforehand, Hollande vowing: "We are ready to support the rebellion." Relations with key partner Russia will also be addressed.