The go-slow approach could test the patience of investors, spooked by the euro zone debt crisis, who sold off peripheral countries’ bonds this month until the European Central Bank intervened to steady markets.

Going beyond last July’s flawed exercise, which failed to expose Irish banks’ frailty, EU ministers agreed to include targets on liquidity in new, tougher tests of banks’ ability to withstand financial shocks to be conducted by the end of May, with results in the third quarter, EU presidency sources said.

“The message is that the tests have to be much more stringent and credible,” one source said.

The tests will encompass the same 91 banks with a tougher methodology, covering not only bank trading books but also banking books and searching tests of core tier 1 capital. Germany had previously resisted testing for liquidity.

New European watchdogs said last week they planned coordinated tests of banks and insurers in the first half of the year, with conclusions published in mid-2011.

Euro zone finance ministers explored ways to strengthen the 17-nation currency zone’s financial backstops at their monthly session on Monday evening, but as expected came to no agreement.

Eurogroup chairman Jean-Claude Juncker said they discussed many options, but favored none.

German Finance Minister Wolfgang Schaeuble said that with markets calmer there was no rush to boost the European Financial Stability Facility, and it should be part of a comprehensive package of reforms adopted by EU leaders in late March.

“We want to bring about a comprehensive package and this naturally means, beyond short-term measures, an improvement of the Stability and Growth pact and economic coordination,” Schaeuble told reporters.

GREECE QUASHES RESCHEDULING TALK

Greece, the first country to receive an EU-IMF bailout last May, moved swiftly to quash a senior minister’s suggestion that it may seek to reschedule its entire outstanding debt to enable it to overcome its debt crisis.

“I do not believe in haircuts but in extending the repayment period on debt,” Deputy Prime Minister Theodore Pangalos, a maverick whose comments do not always reflect government policy, told Skai TV late on Monday.

“Debt payment extension may refer not only to the 110 billion euros (of emergency funding) but the entire debt,” he said.

Many economists believe Greece will eventually have to restructure its debt, but a finance ministry official who requested anonymity said Athens was not discussing stretching out repayment of its entire outstanding debt.

“The government has a very specific agenda … there is preliminary agreement to extend repayment of Greece’s EU/IMF bailout loans and that’s it,” the official said.

Juncker said the euro zone ministers discussed in general terms the possibility of reducing the interest rates charged on rescue loans to Greece and Ireland, and lengthening the maturity on Greece’s 110 billion euro emergency package.

“As concerns the lengthening of the Greek maturity, we are not discussing this in detail as this is part of the comprehensive package we are supposed to deliver,” he said.

The euro rebounded in European trading, jumping above $1.3400, after sliding in Asia as hopes were dashed for an immediate agreement to increase the size of the bailout fund.

Analysts expressed concern that the euro zone was veering away from early action now that bond markets are temporarily calmer following successful debt auctions by Portugal and Spain.

“What indications we have heard from European officials over the past several days is that they just don’t feel the same sense of urgency that the market does,” said Todd Elmer, currency strategist at Citi in Singapore.

GREATER LENDING POWER

The EFSF was set up last May after the Greek bailout to help any other euro zone countries that got shut out of credit markets. Ireland had to tap the fund in December after its public debt ballooned following a bank crash due to the bursting of a real estate bubble.

The EFSF borrows money on markets with euro zone government guarantees of up to 440 billion euros. But to obtain the top credit rating of triple A, the lenders have to set aside cash reserves effectively reducing the amount the fund can lend to countries in need to about 250 billion euros.

Markets want to see more money available for the fund because they estimate the current amount would not be sufficient if both Portugal and Spain applied for emergency financing.

Ministers of the six euro zone countries with a triple A rating — Germany, France, the Netherlands, Finland, Austria and Luxembourg — held a preliminary meeting on Monday to discuss how that aim could be achieved.

“Obviously it is clear that we have an interest in securing the (fund’s) triple A status and the triple-A states are therefore positioning themselves such that their voice is heard in the future,” Austrian Finance Minister Josef Proell told reporters.

Euro zone policymakers are expected eventually to increase the firepower of the rescue fund by 260 billion euros to reach 700 billion, a Reuters poll shows.

Last week, the European Commission and the European Central Bank called not only for the EFSF to have more money but also to use it in a different way — for example to buy government bonds on the secondary market, like the ECB does now.

(Reporting by euro zone bureau; writing by Paul Taylor, Editing by Mike Peacock)

The steps by Prime Minister Viktor Orban and his Fidesz party have elicited unusual public rebukes from Britain, Germany and Luxembourg, whose foreign minister openly questioned last week whether Hungary was “worthy” of leading the EU.

Berlin and other capitals have pressed Budapest to amend its new media law even before it goes into force, worried the clampdown could dilute the bloc’s message on press freedoms to countries like Russia and become a distraction as Europe grapples with a debt crisis.

In a clear warning to Orban’s government on Thursday, Germany’s deputy foreign minister Werner Hoyer pressed Budapest to clear up concerns about the law “quickly”.

“I assume the final word by the Hungarian government hasn’t been spoken yet on this issue,” he told the Frankfurter Rundschau newspaper.

A spokesman for the British Foreign Office had the same message, calling freedom of the press “the heart” of a free society and urging Budapest to reconsider its plans.

“We hope that the Hungarian government will soon resolve this issue satisfactorily and that it will not impact adversely on the successful delivery of the Hungarian EU Presidency,” the Foreign Office said in a statement.

But Hungary is digging in its heels.

On Thursday, its president signed off on the legislation, which establishes a new national media authority packed with officials loyal to Fidesz, which will oversee all public news production and have powers to levy big fines on private media.

Orban, whose centre-right party won a two-thirds majority in parliament in April, has vowed to resist pressure to change the law, saying it has been misunderstood by foreigners unfamiliar with Hungary’s domestic situation.

CRUCIAL TIME FOR EU

The showdown comes at a crucial moment for the 27-nation EU, which is preparing to approve controversial changes to its main treaty in order to set up a new financial rescue mechanism for euro zone countries and introduce new reforms to strengthen budget discipline.

During Hungary’s six-month presidency, it will preside over the launch of sensitive talks on the EU’s 2014-2020 budget, which will pit Britain, Germany and France against poorer countries from central and eastern Europe.

The bloc must also tackle divisive issues like the integration of its large Roma minority and a push by Bulgaria and Romania to join the Schengen free-travel zone.

To deliver results on these polarising issues, analysts say Orban — a 47-year old lawyer who rose to fame in 1989 when he demanded Soviet troops leave Hungary during a reburial ceremony for former prime minister Imre Nagy — will have to change the brash style that has lured voters at home but grated on Hungary’s partners.

“You cannot behave like a bull in a china shop. The EU does not work like that,” said Zoltan Kiszelly, a political analyst.

Less than a year into his term, Orban has shocked many outside Hungary by charting a policy course that contrasts sharply with the austerity ethos elsewhere in Europe.

Upon taking power he announced he would not extend a 20 billion euro loan deal with the EU and IMF that helped Hungary avert financial meltdown in 2008.

He has curbed the jurisdiction of Hungary’s top court and placed people loyal to Fidesz at the top of public institutions in a major drive to consolidate his power.

Earlier this month, Orban won parliamentary backing to seize up to $14 billion in private pension assets in a shock move to cut the deficit.

His government is also pressing ahead with plans to change a law on how members of the central bank’s monetary policy council are appointed, in what is widely seen as an attempt to force the bank into monetary easing to support its pro-growth agenda.

The European Central Bank has criticised the plan and investors have begun pricing in the risks from rising tensions between the government and national central bank.

EU DIPLOMATS PLAY DOWN IMPACT

Diplomats in Brussels play down the impact of Hungary’s unconventional policies on the broader EU.

In the past, the bloc’s bureaucratic machinery rumbled on during weak presidencies, although some deals were slower to materialise or proved elusive.

One example was the Czech stint at the EU’s helm in early 2009, when the country’s government collapsed and its President Vaclav Klaus actively preached his eurosceptic views.

Despite these obstacles, the EU managed to defuse a gas row between Russia and Ukraine, held a successful summit with U.S. President Barack Obama and clinched a deal with Ireland to secure its approval of the Lisbon treaty.

“Of course, Hungary’s unorthodox measures will not help its presidency, but we should not exaggerate their impact,” one EU diplomat said. “Its image is tarnished, but it is not the case that its work will be paralysed.”

Budapest could prove successful, diplomats say, if it manages to steer the bloc through the myriad lower-level technical negotiations that will be necessary to bed down EU reforms, and relies on bigger countries and new institutions to broker tough deals.

Orban will not be in the driver’s seat in many areas, including foreign policy and the steering of EU summits.

Those will be overseen by the EU’s high representative, Catherine Ashton, and the EU’s president, Herman Van Rompuy — both posts created by the Lisbon treaty.

Major decisions affecting the euro zone are likely to be drafted by EU powerhouses Germany and France.

Still, Hungarian officials will preside over monthly meetings of ministers of agriculture, energy, environment, employment and, most crucially, finances.

(Editing by Noah Barkin)

The steps by Prime Minister Viktor Orban and his Fidesz party have elicited unusual public rebukes from Britain, Germany and Luxembourg, whose foreign minister openly questioned last week whether Hungary was “worthy” of leading the EU.

Berlin and other capitals have pressed Budapest to amend its new media law even before it goes into force, worried the clampdown could dilute the bloc’s message on press freedoms to countries like Russia and become a distraction as Europe grapples with a debt crisis.

In a clear warning to Orban’s government on Thursday, Germany’s deputy foreign minister Werner Hoyer pressed Budapest to clear up concerns about the law “quickly.”

“I assume the final word by the Hungarian government hasn’t been spoken yet on this issue,” he told the Frankfurter Rundschau newspaper.

A spokesman for the British Foreign Office had the same message, calling freedom of the press “the heart” of a free society and urging Budapest to reconsider its plans.

“We hope that the Hungarian government will soon resolve this issue satisfactorily and that it will not impact adversely on the successful delivery of the Hungarian EU Presidency,” the Foreign Office said in a statement.

But Hungary is digging in its heels.

On Thursday, its president signed off on the legislation, which establishes a new national media authority packed with officials loyal to Fidesz, which will oversee all public news production and have powers to levy big fines on private media.

Orban, whose center-right party won a two-thirds majority in parliament in April, has vowed to resist pressure to change the law, saying it has been misunderstood by foreigners unfamiliar with Hungary’s domestic situation.

CRUCIAL TIME FOR EU

The showdown comes at a crucial moment for the 27-nation EU, which is preparing to approve controversial changes to its main treaty in order to set up a new financial rescue mechanism for euro zone countries and introduce new reforms to strengthen budget discipline.

During Hungary’s six-month presidency, it will preside over the launch of sensitive talks on the EU’s 2014-2020 budget, which will pit Britain, Germany and France against poorer countries from central and eastern Europe.

The bloc must also tackle divisive issues like the integration of its large Roma minority and a push by Bulgaria and Romania to join the Schengen free-travel zone.

To deliver results on these polarising issues, analysts say Orban — a 47-year old lawyer who rose to fame in 1989 when he demanded Soviet troops leave Hungary during a reburial ceremony for former prime minister Imre Nagy — will have to change the brash style that has lured voters at home but grated on Hungary’s partners.

“You cannot behave like a bull in a china shop. The EU does not work like that,” said Zoltan Kiszelly, a political analyst.

Less than a year into his term, Orban has shocked many outside Hungary by charting a policy course that contrasts sharply with the austerity ethos elsewhere in Europe.

Upon taking power he announced he would not extend a 20 billion euro loan deal with the EU and IMF that helped Hungary avert financial meltdown in 2008.

He has curbed the jurisdiction of Hungary’s top court and placed people loyal to Fidesz at the top of public institutions in a major drive to consolidate his power.

Earlier this month, Orban won parliamentary backing to seize up to $14 billion in private pension assets in a shock move to cut the deficit.

His government is also pressing ahead with plans to change a law on how members of the central bank’s monetary policy council are appointed, in what is widely seen as an attempt to force the bank into monetary easing to support its pro-growth agenda.

The European Central Bank has criticized the plan and investors have begun pricing in the risks from rising tensions between the government and national central bank.

EU DIPLOMATS PLAY DOWN IMPACT

Diplomats in Brussels play down the impact of Hungary’s unconventional policies on the broader EU.

In the past, the bloc’s bureaucratic machinery rumbled on during weak presidencies, although some deals were slower to materialize or proved elusive.

One example was the Czech stint at the EU’s helm in early 2009, when the country’s government collapsed and its President Vaclav Klaus actively preached his eurosceptic views.

Despite these obstacles, the EU managed to defuse a gas row between Russia and Ukraine, held a successful summit with U.S. President Barack Obama and clinched a deal with Ireland to secure its approval of the Lisbon treaty.

“Of course, Hungary’s unorthodox measures will not help its presidency, but we should not exaggerate their impact,” one EU diplomat said. “Its image is tarnished, but it is not the case that its work will be paralyzed.”

Budapest could prove successful, diplomats say, if it manages to steer the bloc through the myriad lower-level technical negotiations that will be necessary to bed down EU reforms, and relies on bigger countries and new institutions to broker tough deals.

Orban will not be in the driver’s seat in many areas, including foreign policy and the steering of EU summits.

Those will be overseen by the EU’s high representative, Catherine Ashton, and the EU’s president, Herman Van Rompuy — both posts created by the Lisbon treaty.

Major decisions affecting the euro zone are likely to be drafted by EU powerhouses Germany and France.

Still, Hungarian officials will preside over monthly meetings of ministers of agriculture, energy, environment, employment and, most crucially, finances.

(Editing by Noah Barkin)

With Hungary at the helm, the 27-nation European Union faces major challenges, including the approval of changes to its main treaty to set up a new rescue mechanism for euro zone countries and the introduction of reforms to sharpen budget discipline.

Over the next six months, Hungary will preside over the launch of sensitive talks on the EU’s 2014-2020 budget, which will pit Britain, Germany and France against poorer countries from central and eastern Europe.

Under Budapest’s leadership, the bloc must also tackle divisive issues like the integration of its large Roma minority and a push by Bulgaria and Romania to join the Schengen free-travel zone.

EU diplomats say the tasks could be more difficult for Hungary because of international criticism of its new media law and controversial economic policies.

But Budapest could still prove successful if it manages to steer the bloc through the myriad lower-level technical negotiations that will be necessary to bed down EU reforms, and relies on new institutions created by the Lisbon treaty to manage summits and broker deals.

“Of course, Hungary’s unorthodox measures will not help its presidency, but we should not exaggerate their impact,” one EU diplomat said. “Its image is tarnished, but it is not the case that its work will be paralysed.”

Hungary’s Prime Minister Viktor Orban, whose centre-right Fidesz party won a two-thirds majority in parliament in April, has rejected the austerity measures adopted by many of his European partners and launched a set of unconventional fiscal measures.

The latest move by Fidesz is a media law which tightens government control over news outlets.

The Hungarian government says the legislation, which is due to go into effect on January 1, will strengthen press freedoms by boosting transparency, and is in line with similar laws in other member states.

But it has provoked a sharp reaction from Budapest’s EU partners.

Luxembourg Foreign Minister Jean Asselborn has said the law violates the “spirit and letter” of EU treaties and raises questions about whether Hungary is “worthy of leading the EU.” Germany has said it expects Hungary to change the law, a step Orban has rejected..

LESS POWER FOR PRESIDENCY

Another EU diplomat said the media law would not necessarily lead to Orban being ostracised within the EU, pointing to the continuing influence of Italy’s Prime Minister Silvio Berlusconi despite his control of Italian media.

But analysts agree that to make the Hungarian presidency a success, Orban will have to change the uncompromising, brash style that has gone down well with voters at home.

“You cannot behave like a bull in a china shop. The EU does not work like that,” said Zoltan Kiszelly, a political analyst. “The EU is built on consensus, not conflict.”

Orban will not be in the driver’s seat in many areas, including foreign policy and the major decisions taken at EU summits.

Those will be overseen by the EU’s high representative, Catherine Ashton, and the EU’s permanent president, Herman Van Rompuy. Both posts were created by the Lisbon treaty.

Major decisions affecting the euro zone are likely to be drafted by EU powerhouses Germany and France.

Still, Hungarian officials will preside over monthly meetings of ministers of agriculture, energy, environment, employment and, most crucially, of finances.

During Hungary’s presidency, finance ministers should finalise the package of reforms to boost fiscal discipline.

REFORMS, CENTRAL BANK IN FOCUS

Hungary has pledged to be an honest broker, but diplomats say it does not help that its own house is not entirely in order.

The government’s unconventional fiscal measures — which include taxes levied on banks and mostly foreign firms and an effective nationalisation of private pension fund assets — have prompted ratings downgrades and elevated Hungary’s risk premia as investors worry that the deficit could swell after 2012.

Hungary escaped financial meltdown in 2008 thanks to a bailout of the EU and the International Monetary Fund.

By February, Hungary will have to present to the EU and investors a credible programme of structural reforms to prove it can keep the budget on a sustainable path.

If this package of reforms disappoints, the central European country could see its debt downgraded to junk status and face a sharp market selloff.

Orban’s Fidesz party has already curbed the jurisdiction of Hungary’s top court and placed people loyal to Fidesz at the top of public institutions in a consolidation of power that is expected to continue.

The government plans changes to a law on how members of the central bank’s monetary policy council are appointed, in what is widely seen as an attempt to force the bank into monetary easing to support its pro-growth agenda. This is a risk investors are already pricing in.

(Editing by Noah Barkin)

“All over Europe, countries are tightening their belts to deal with their deficits. Europe cannot be immune from that. We need to see real budgetary restraint from 2014,” Cameron told a news conference after an EU summit on Friday.

Cameron used the summit, which agreed on an EU treaty change paving the way for a permanent euro zone financial rescue scheme, to drum up support for a leaner long-term EU budget. This irked EU net recipients from central and east Europe, such as Poland.

Next year’s budget is worth 126.5 billion euros, with more than 40 percent of it going on agriculture and a third on aid to poor regions.

The EU’s 27 countries will start talks in mid-2011 on the long-term budget, which runs from 2014 until 2020 or longer.

“Tomorrow, Angela Merkel, Nicolas Sarkozy and I, together with a number of other partners, will publish a text … to put a firm marker for these negotiations (on the EU budget),” Cameron said. “The text to be published talks about at least a real terms freeze for that period.”

A draft of the letter, obtained by Reuters, said EU budgets post-2013 should increase no more than the rate of inflation. With high economic growth and low inflation, that could mean an effective cut in the budget over time.

CENTRAL, EAST EUROPEANS ANGRY

Some diplomats said the British demand would also be supported by the Netherlands, Sweden, Finland and Austria.

The letter could be bad news for many poorer EU countries from central and eastern Europe, such as Poland, Bulgaria and Romania, as it could signal efforts to trim the large aid funds they receive from the bloc to modernize their poor regions.

Polish Prime Minister Donald Tusk said his country would resist attempts to cut the EU budget.

“What is the most important from our point of view is for the budget not to be reduced significantly, because we believe the funds flowing to Poland and other countries help us fight the crisis,” Tusk said on Thursday.

He took cheer from the fact that despite Cameron’s efforts, the summit’s conclusions did not make any reference to cuts.

One diplomat said Britain has scaled down its demands as it initially wanted to trim the budget to 0.85 percent of the bloc’s output, compared with the current 1 percent.

“I don’t think it is a big victory for Cameron. The letter could have been much stronger and it is not talking about significant cuts,” the diplomat said.

The EU’s costly farm subsidies will be another contentious issue in the debate. They will be defended by France, a major recipient.

Cameron dismissed suggestions by some media and diplomats that he had clinched a deal with Sarkozy whereby Britain will support keeping EU farm subsidies in exchange for London maintaining its rebate from EU coffers, which was won by former prime minister Margaret Thatcher in 1984.

“There is no backroom deal, no secret agreement,” he said.

(Editing by Patrick Graham)

Cameron presented a letter to EU leaders to demand a lean
EU budget in the bloc’s next long-term spending plan after
2013, which said expenditure should be frozen at that year’s
level and increased only according to the rate of inflation.

Cameron, who is often confronted by an influential
euro-sceptic media at home, believes the EU budget should be
kept under strict control at a time when governments are
struggling to tame their national budget deficits.

“European public spending cannot be exempt from the
considerable efforts made by the member states to bring their
public spending under control,” read a draft of the letter
obtained by Reuters.

“Payment appropriations should increase, at most, by no
more than inflation over the next financial perspective,” it
said.

The next EU long-term budget begins in 2014 and is due to
last seven years, although there is a proposal from the
European Commission to extend it to 10 years.

Diplomats said the final version of the letter was still
being drafted, but it gained initial support of heavyweights
France and Germany as well as the Netherlands, Sweden, Finland,
the Czech Republic, Estonia, Austria and possibly Slovenia.

“The letter could be made public this week or before
Christmas,” one EU diplomat said.

The EU’s budget will be worth 126.5 billion euros next year
and it could grow by several percent by 2013. About a third of
the budget is spent on aid to poor regions and more than 40
percent on agricultural subsidies.

EAST EUROPE OPPOSITION

The letter is bad news for most poorer EU countries from
central and eastern Europe, such as Poland, Bulgaria and
Romania, as it could signal efforts to trim large aid funds
they receive from the bloc to modernise their poor regions.

One Polish diplomat voiced surprise that British demands
for a modest budget were supported not only by the EU’s net
payers, but also by such countries as the Czech Republic, which
is a net recipient from the budget.

Polish Prime Minister Donald Tusk said his country would
defend the EU’s budget from attempts to cut it.

“What is the most important from our point of view is for
the budget not to be reduced significantly, because we believe
the funds flowing to Poland and other countries help us fight
the crisis,” Tusk told reporters hours before the summit.

He took cheer from the fact that despite Cameron’s efforts,
the summit’s conclusions would not make any reference to cuts.

Allowing the EU’s budget to grow only according to the rate
of inflation could mean cuts in real terms as the bloc’s
economic output is likely to keep growing.

Another diplomat said Britain has scaled down its demands
as it initially wanted to trim the budget to 0.85 percent of
the bloc’s output, compared with the current 1 percent.

The real battle over the size of the budget will start in
mid-2011 after the European Commission, the EU’s executive
body, makes concrete proposals on the long-term budget from
2014.

The EU’s costly farm subsidies will be another contentious
issue in the debate. They will be defended by France, their
major recipient. But a third diplomat speculated that Britain
was working on a deal with France to keep farm spending, saying
that such a deal could mean cuts in regional aid funds, mainly
for central and eastern Europe.

Britain is also set to defend its rebate from EU coffers
won by former Prime Minister Margaret Thatcher in 1984.
(Editing by Leslie Adler)

The European Parliament passed the budget worth 126.5
billion euros, 2.9 percent more than this year, after a long
tussle with the EU’s 27 member states.

Legislators had initially demanded a 6.2 percent rise, but
backed down under pressure from governments, which said EU
spending must not grow by so much when many countries are making
deep cuts at home to ward off a sovereign debt crisis.

Negotiations between legislators and governments also
stalled for weeks over demands for the parliament to have more
power in determining future EU budget-making. Those demands were
met only partially and in a non-binding way.

“Thanks to today’s decision we will avoid a provisional
budget, which would slow down the execution of EU policies,
mainly agriculture and regional aid,” Sidonia Jedrzejewska of
Poland, the parliament’s lead negotiator, said in a statement.

Without a budget deal, next year’s spending would have been
the same as in 2010 and disbursed in 12 equal instalments. Some
programmes would have been denied funding, such as the EU’s
fledgling diplomatic service, new bodies to supervise financial
markets, and a nuclear fusion project.

THE WORST IS YET TO COME

The parliament’s vote settled a dispute over EU spending for
now, but battle will be joined next year when governments open
negotiations on the bloc’s next long-term budget, which will run
from 2014 and may last seven or 10 years.

“It is quite obvious that the minority of net-paying EU
countries with eurosceptic governments want the EU budget to be
cut at all costs,” said Goran Farm, a Swedish socialist member
of the European Parliament.

“This is only the first shot in a bigger battle to come. If
the Council wants to slash the EU budget, we will face permanent
trench warfare. We are not going to accept that.”

Britain and the Netherlands have been the strongest
advocates of EU budget cuts.

An EU diplomat said Britain would like the see long-term
spending frozen at the current level in real terms, which would
mean cuts when taking into account economic growth and
inflation.

“Clearly our objective will be to push for the same
restraint on the budget for the next financial perspective that
we’ve been pushing for the budget next year,” said British Prime
Minister David Cameron’s budget spokesman.

Britain’s stance worries poorer EU countries from central
and eastern Europe — the main beneficiaries of the bloc’s
regional aid funds, which finance road construction,
environmental clean-up, job training and other projects.

The EU’s costly farm subsidies will be another contentious
issue in the debate. They will be defended by France, their
major recipient. Britain is also set to defend its rebate from
EU coffers won by former prime minister Margaret Thatcher in
1984.

(Additional reporting by Keith Weir in London and Paul
Taylor in Paris)

(Reporting by Marcin Grajewski; editing by Rex Merrifield,
Ron Askew)

The number of employed held stable in the July-September period at 144.5 million people as construction, industry and agriculture lost jobs while the financial services, public administration, health and transport increased headcounts.

Employment during the third quarter fell 0.2 percent year-on-year. Employment is a lagging indicator, so it reacted with a delay to the euro zone’s recovery from the worst economic crisis in decades.

Euro zone growth slowed to 0.4 percent quarter-on-quarter in the July-September period, from 1.0 percent in the previous three months.

“The fact that euro zone employment was only stable in the third quarter indicates that companies are still reluctant to take on workers and may well be trying to get as much as they can out of their existing workers,” said Howard Archer, chief European analyst at IHS Global Insight.

“We remain doubtful that euro zone labor markets will see major improvement for some time to come so unemployment seems likely to remain high overall.”

Eurostat said euro zone employment fell 1.1 percent quarter-on-quarter in construction, 0.3 percent in manufacturing and 0.2 percent in agriculture. It grew 0.3 percent in financial services and business activities and 0.2 percent in public administration, health and education.

Country figures confirmed wide disparities across the currency area, which analysts say have resulted in the current sovereign debt crisis.

Germany, the euro zone’s biggest economy, increased its employment by 0.3 percent in the third quarter while France, the second biggest, by 0.2 percent.

Crisis-hit Greece and Spain saw their employment rates fall by 0.7 percent over the period.

Euro zone unemployment inched up in October to 10.1 percent, the highest level since July 1998, previous Eurostat figures showed.

(Editing by Rex Merrifield)

European Union statistics office Eurostat said that
industrial output in the 16 countries using the euro rose 0.7
percent month-on-month for an annual gain of 6.9 percent.

Economists polled by Reuters had expected a monthly rise of
1.3 percent and an annual increase of 7.6 percent.

Eurostat also revised upwards the September figures to -0.7
percent from a previous reading of -0.9, and to 5.4 percent
year-on-year from 5.2 percent.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For full data see:

here

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Industrial production accounts for less than 20 percent of
euro zone gross domestic product, but because of its knock-on
effects on other sectors it is still seen as a good proxy for
estimating gross domestic product growth.

Euro zone growth slowed to 0.4 percent in the July-September
period, quarter-on-quarter, from 1.0 percent in the previous
three months.

It is expected to remain subdued as austerity measures
ordered by many governments begin to bite and uncertainty linked
to sovereign debt problems may undermine consumer spending.

Eurostat said industrial production growth was fuelled by a
1.8 percent monthly increase in capital goods, such as
machinery, tools and equipment used to produce other goods,
suggesting corporate investment was on the rise.

But production of durable consumer goods contracted 0.1
percent on the month, pointing to weak private demand that is
key to making euro zone growth self-sustaining.

The data confirmed that euro zone growth is being powered by
Germany, the area’s biggest economy, where monthly production
increased by 3.0 percent. Output fell by 0.6 percent in France,
the euro zone’s second biggest economy.

Encouragingly, production rose in crisis-hit Greece and
Spain — by 3.6 percent and 0.1 percent respectively.

An EU diplomat said the EU’s 27 governments had decided on
Wednesday to meet some of the European Parliament’s demands,
which have so far blocked the deal. Another source said the
parliament’s initial reaction to the offer was positive.

The stand-off over next year’s budget had threatened to
throw the bloc’s financial planning into disarray and further
undermine the EU’s credibility at a time when it is scrambling
to control a debt crisis across the euro zone.

“We are very close to a deal,” one of the sources close to
the negotiations said.

The source said government and parliamentary negotiators may
meet on Monday to finalise a deal and the lawmakers could pass
the budget on Dec. 15, a day before EU leaders meet in Brussels
to discuss a permanent mechanism for handling debt crises.

Without a budget deal, next year’s spending would be the
same as in 2010, disbursed in 12 equal instalments. Some
programmes would be denied funding, such as the EU’s fledgling
diplomatic service, a nuclear fusion project and newly created
bodies to supervise financial markets.

The negotiations have stalled over the parliament’s demand
for a declaration that would clarify its future role in
budget-making under the Lisbon treaty, a new framework for
running the EU that came into force last year.

The two sides had already agreed that the 2011 budget will
grow by 2.9 percent from this year’s 123 billion euros ($163
billion). The lawmakers had initially demanded a 6.2 percent
increase.

The parliament, which has increased powers since the EU
adopted the Lisbon treaty, wants more flexibility in the way the
budget is spent and guarantees that lawmakers will be
represented during negotiations on the EU’s next, long-term
budget, which could be worth 1 trillion euros.

They also asked for a debate on giving the EU an independent
source of income.

Another EU diplomat said the governments’ offer to the
parliament does not contain any binding guarantees. “I would see
it as giving to the parliament something face-saving,” he said.
(Reporting by Marcin Grajewski; Editing by Ruth Pitchford)