Budget divisions overshadow EU jobs talks

French President Francois Hollande defended his push for an easing of European Union budget restrictions on Wednesday, potentially deepening divisions with Germany which is pressing Paris to move faster on reforms.

Speaking as he went into a meeting of EU leaders on jobs in Milan, Hollande said the euro zone's faltering economy would continue to slow unless tight budget rules were eased.

"We're all affected by the slowdown in growth. We all have to do reforms," he told reporters. "And we also have to adjust budget policies, given what's at stake on growth."

While promising to begin a broad drive on social security and labour reforms, he called on Germany, Europe's biggest economy, to take steps to boost demand. "Everyone has to do their part with one single objective: growth," he said.

Hollande's comments underline the divisions between the biggest members of the euro zone over the issue of budget policy with both France and Italy pressing for a more expansive approach in the face of opposition from Germany.

German Chancellor Angela Merkel did not speak to reporters as she went into the meeting but is due to appear at a news conference with Hollande and Italian Prime Minister Matteo Renzi at about 1600 GMT.

The three-hour meeting in Milan, called by Renzi, whose country holds the rotating presidency of the European Union, is not expected to announce any concrete measures.

But Renzi wants to use it as a platform to focus on unemployment in southern European countries like Italy, where the youth jobless rate has topped 44 percent.

Hundreds of demonstrators gathered outside the congress centre in Milan before the meeting, attacking Renzi's plans to overhaul hiring-and-firing rules.

BUDGET DISPUTE

German Labour Minister Andrea Nahles said the meeting would discuss more effective use of funds earmarked to help young people into work. "It is important that the money that is available arrives as soon as possible," she told reporters.

France and Italy have put back deficit and debt targets previously agreed with their European Union partners, arguing rigid application of budget rules will strangle the euro zone's sickly economy. Germany says countries must first push through effective structural reforms.

In Brussels, former French finance minister Pierre Moscovici, who is the EU commissioner-designate to take charge of policing budget discipline in the euro zone, said he was ready to step up disciplinary action against Paris for not respecting its obligations under EU budget rules.

Renzi faces a confidence vote in parliament on Wednesday over his plans to shake up labour rules and water down strict job protection measures that are fiercely defended by unions and sections of his own centre-left party.

The 39-year-old prime minister is desperate for a concrete sign that he is making progress with reform promises he made when he took office in February.

His labour reform is intended to overhaul a system widely criticised for offering rigid guarantees to employees on full permanent contracts while leaving an increasing army of workers on short-term contracts with almost no protection.

At present, permanent employees of larger companies can sue to get their jobs back in cases of unfair dismissal. But the rules exclude those on short-term contracts, many of whom are younger people entering the workforce, and do not apply to the thousands of firms with fewer than 15 employees.

Renzi says the rigid labour law makes it unattractive for firms to take on new staff and deters foreign investment.

He wants to replace the system with a simpler set of rules that offer workers more protection as their seniority increases.

But he has yet to spell out the details and the confidence vote, expected as the Milan meeting is due to conclude, will apply to broad-brush guidelines that will be filled out later.

The confidence vote in the Senate, where the government has a slim majority, is aimed at truncating debate, and Renzi said he expected party rebels to swing behind him.