BRUSSELS (AFP) - EU leaders meet on Thursday set on delivering growth and jobs for Europe's 'lost generation' of young people as crisis-induced austerity and high unemployment test voters' trust European union.

In some good news for the 5.6 million people under 25 and unemployed, European Union authorities announced a political deal on the EU's hotly-contested 2014-2020 trillion-euro budget.

The deal came just hours before leaders gather for the two-day summit.

After months of bitter argument, European Commission president Jose Manuel Barroso said a budget compromise was agreed at emergency breakfast talks.

This could accelerate the pumping of funds into schemes to get youngsters out of unemployment and into jobs or training schemes.

"Today we have agreed on this budget that will make investment in Europe possible," Barroso said of the agreement on the 960-billion-euro (S$1.2 trillion) which will still need to be approved by the EU's 754 lawmakers.

"This is the growth fund for Europe," Barroso added.

There was no immediate comment from austerity-minded hardliners Britain, Germany and the Netherlands, which early this year shot down Commission plans to increase spending by five percent over the next seven years.

With EU nations set on belt-tightening spending cuts to beat Europe's debt crisis, leaders instead agreed for the first time ever to cut spending - by three percent.

But as leaders headed to Brussels, EU staff went on an unprecedented strike against austerity and striking railworkers in Belgium snarled domestic and international trains.

In all, austerity and recession have left 26 million people unemployed across the 27-nation bloc, one out of four aged between 16 and 25.

In struggling southern states Portugal and Spain, one out of two youngsters is out of a job, three of five in Greece. Even in Italy, the eurozone's third economy, two out of five youngsters are on the dole.

The leaders are expected to speed up disbursement from next year of 3.6 billion euros of a six-billion fund to help jobless youngsters, as well as improving access to credit and increasing youth mobility across European borders.

The centrepiece of the scheme is the implementation of a Europe-wide guarantee of a job or training offer for young people within four months of their finishing studies or losing their job.

"This is an urgent situation and we urge European leaders to act concretely to confront it," said Bernadette Segol from the European Trade Union Confederation (ETUC).

EU President Herman Van Rompuy describes the problem as "one of the most pressing issues in most, if not all, of our member states" which leaders simply must tackle if the union is to prove its worth.

Talk of a lost generation and concern over popular discontent have fed support for extremist political parties and bred dissatisfaction with the European project and animosity towards EU institutions.

A Pew Research survey last month branded the European Union "The New Sick Man of Europe", showing favourable opinion of the EU slumping from 60 percent last year to just 45 percent now.

"The European project now stands in disrepute across much of Europe," it said.

Eastern European states continue to prepare to join the bloc of 500 million people and none of the 17 nations that share the euro - about to become 18 with Latvia - is keen to leave.

Serbia is expected to win endorsement from the EU summit to begin membership talks no later than January after having agreed to tough EU-set conditions to normalise ties with its breakaway former province of Kosovo.

And Croatia on Monday officially becomes the 28th EU state.

Kosovo itself is also expected to get the go-ahead for talks on a Stabilisation and Association Agreement with the EU - a prospect that its foreign minister Enver Hoxhaj hailed as a "milestone".

But citizens from the originally core EU states are increasingly opposed to enlarging towards the poorer east.

Conservative British Prime Minister David Cameron has called for powers to be taken back from Brussels and for Britain's refashioned membership to be put to an 'in-out' referendum.