UK PM David Cameron gets a warm greeting from German Chancellor Angela Merkel and a handshake from French President Nicolas Sarkozy

The EU’s 27 leaders are discussing how to create jobs and growth amid calls to go beyond enforcing budget discipline.

The EU has more than 23 million unemployed people and there are fears that wide-ranging budget cuts will harm enterprise and training.

The eurozone crisis is dominating the EU summit in Brussels, with debt-laden Greece still at risk of defaulting.

A budget treaty for the eurozone has been drafted. But Poland’s prime minister said it lacked ambition.

Donald Tusk said the new treaty – a “fiscal compact” – was “not entirely ambitious and not brave enough”.

Poland, like other new EU member states in the former communist bloc, is preparing to join the euro and feels it should be fully involved in eurozone meetings.

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image of Chris Morris Chris Morris BBC News

The official summit agenda is growth and job creation, and it will be discussed in some detail. Unemployment will be perhaps the big issue in the French presidential election, and there are now more than five million people out of work in Spain – without reversing that trend the eurozone crisis isn’t going to ease.

Leaders will also try to finalise the text of the new fiscal treaty which all EU countries except Britain say they intend to sign.

Then there are the off-agenda items which always make an appearance on occasions like this.

Cometh the EU summit hour, cometh the Greeks… I’m sure they’d like to sit unnoticed in the corner for once, but Greece has developed an unwelcome habit of hogging summit headlines.

Mr Tusk said he wanted to be “participating in the decision-making process, in terms of how this fiscal compact is executed”.

Currently the draft treaty says signatories will hold summits at least twice a year. The attendance of non-euro countries is left to the discretion of the summit president, with the words “will invite when appropriate and at least once a year”.

The head of the Liberal group in the European Parliament, Guy Verhofstadt, echoed Mr Tusk’s criticism, in a BBC interview. He said the treaty “says nothing on jobs, growth and [European] solidarity”.

All member states – apart from the UK – are expected to sign up to the fiscal compact.

The goal is much closer co-ordination of budget policy in the 17-nation eurozone.

As the summit got under way there were fresh fears that Portugal might need a second massive bailout, like Greece.

The yield (interest rate) demanded for Portuguese sovereign bonds rose above 16% – an unsustainable level.

Hard times

A general strike in Belgium reminded EU leaders of public discontent with austerity as they arrived for the summit. It paralysed most of the Brussels transport system and disrupted international trains and flights.

The leaders exchanged views on how best to tackle youth unemployment and support small and medium-sized enterprises (SMEs), many of which complain of excessive administrative costs imposed by Brussels.

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“Start Quote

In 2012, much more attention will be given to growth. Why? Because many countries are heading into recession just as austerity measures start to bite”

image of Gavin Hewitt Gavin Hewitt BBC Europe editor

In a joint statement on economic growth they noted that cutting budget deficits was “not in itself sufficient”.

“We have to modernise our economies and strengthen our competitiveness to secure sustainable growth,” the statement said.

The EU will help to fund schemes to get young people into work or training in member states with the highest youth unemployment levels.

They pledged to speed up measures to develop the EU single market, including:

  • agreement on a common EU patent system by July;
  • better targeting of EU funds towards SMEs;
  • national legislation to create a functioning single market in services and energy.

The European Commission says 82bn euros (£69bn; $107bn) of EU money is available for countries to spend on projects to boost jobs and growth.

Greek debt mountain

The Commission also says it is confident a deal will be reached within days to reduce Greece’s colossal debt burden. But Greece could still run out of money as early as mid-February.

Private investors are being asked to take a 50% “haircut” (loss) on their Greek bonds in a complex bond swap, with the aim of scaling back Greece’s debt to 120% of gross domestic product by 2020.

A deal is crucial for the EU and International Monetary Fund to grant a long-awaited 130bn-euro second bailout for Greece.

In an interview for the Wall Street Journal on Monday, German Finance Minister Wolfgang Schaeuble said only radical reforms in Greece could trigger the release of the funds.

“Unless Greece implements the necessary decisions and doesn’t just announce them… there’s no amount of money that can solve the problem,” he said.

The atmosphere remained tense at the weekend with a row over a leaked German proposal to put an EU budget commissioner with veto powers in charge of Greek taxes and spending.

Greece rejected the proposal outright, but its EU partners remain alarmed by its failure to meet tough fiscal targets.

At the summit German Chancellor Angela Merkel played down the idea of a special EU commissioner for Greece, calling it “a debate we should not be having”.

The EU is trying to put in place a bigger, more resistant “firewall” to prevent contagion spreading from Greece.

The eurozone plans to launch a 500bn-euro permanent bailout fund – the European Stability Mechanism (ESM) – in July, a year earlier than first planned. It is expected to get the final go-ahead at the summit. The UK will not contribute to it.

Italy alone needs to refinance more than 300bn euros of debt this year and there are many voices urging the European Central Bank to boost the firewall to at least 1tn euros.