- Associated Press - Thursday, March 1, 2012

BRUSSELS — Europe’s leaders hoped to chart the continent’s way back to growth at a summit Thursday, but showed no sign of moving away from the painful spending cuts they have been pursuing for the past years.

The cuts — together with the economic uncertainty brought on by a two-year-long debt crisis — have driven unemployment in the 17-country eurozone to its highest level since the shared currency was established in 1999. In crisis hotspots like Greece and Spain, one in five workers is now without a job, according to new figures released Thursday.

Nowhere is the impact of Europe’s austerity policy more obvious than in Greece, which faces a fifth year of recession as it strains to push through a list of austerity reforms required to tap its bailout loans.

The finance ministers of the euro currency union, who met in Brussels ahead of the get-together of heads and state and government, signed off in principle on a first batch of bailout money Greece needs to implement a massive debt relief deal with private investors.

But the final green light for as much as €93.5 billion ($125.69 billion) — which Greece needs to implement the €107 billion debt swap deal — will only come next Friday, once Athens has implemented the last of a series of austerity reforms, the finance ministers said in a statement.

That means Athens will have to wait at least another week before it knows for sure whether it can avoid bankruptcy later this month. Many investors feared an uncontrolled default even by relatively small Greece could end the recent calm on financial markets.

The ministers said the first payout from the overall €130 billion (173 billion) aid package can go only ahead once Athens has passed “a few pending implementing acts” for promised austerity measures.

“The list of prior actions (Greece had to implement) is so long, that we prefer to look at it twice,” said German Finance Minister Wolfgang Schaeuble.

Schaeuble also said that ministers wanted to wait and see how many banks and investment funds will actually participate in the bond swap.

Private investors have until next Thursday to decide whether they will swap their Greek bonds for new ones with a lower face value, lower interest rates and longer repayment periods.

Overall, bondholders will lose more than 70 percent of the value of their holdings, but in return they will receive some of the money they are owed immediately and have at least the hope that they will get some more of it back in 30 years.

Of the €93.5 billion Greece needs in the coming weeks, as much as €35.5 billion are immediate payouts for banks and other investors participating in the bond swap.

Around €23 billion will be used to recapitalize Greek banks that would otherwise collapse under the losses from the debt relief.

The remaining €35 billion will go as collateral to the European Central Bank while Greece’s own bonds are rated in selective default. That money will be freed up again once Greece’s rating improves.

But even if the Greek deal goes ahead as planned, Europe faces a long road of recovery and policymakers appeared set to continue their frugal approach to solving the continent’s economic woes.

“The general remark I hear is that if times are tough, you don’t have to have austerity — well, I don’t share that,” said Dutch Prime Minister Mark Rutte said. “Your government finances have to be up to scratch because it gives confidence to markets, to investors, to your own citizens to spend wisely. So we want to have our budget in order.”

New figures showed that unemployment in the 17-country eurozone hit 10.7 percent in January — the highest level since the currency union launched in 1999. Youth unemployment stood at 21.6 percent, with Spain’s rate at a staggering 49.9 percent.

Policymakers across Europe have made spurring growth and jobs their new mantra, but so far their proclamations have yielded few results. Many economists want governments to stop slashing budgets as the continent heads into another recession, warning that more cuts will further destabilize the economy and make the debt situation even worse.

“This crisis and some remedies puts social cohesion at stake. It can also damage the European idea itself,” said EU President Herman Van Rompuy. “That is why we have to tackle inequalities and poverty.”

Anti-austerity protests — a common sight in crisis hotspots like Greece or Spain — have spread across Europe with trade unions demonstrating against reform packages. Many feel that recent efforts by the EU and the European Central Bank have only benefited banks and investors, while ordinary people continue to suffer.

But political leaders say that large-scale spending won’t kick-start growth. Governments are betting instead on reforms to modernize its economy by cutting red tape, making it easier to hire and fire people, and investing in better broadband networks.

Yet even the EU acknowledges that such economic reforms will take time to show results and has warned that governments often don’t follow up on the commitments leaders make at their regular Brussels get-togethers.

Carlo Piovano, Don Melvin and Robert Wielaard contributed to this story.

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