The issues on which Europe's leaders must reach agreement - and the one keeping them apart

European leaders who gather for the Amsterdam summit today will seek to shore up faltering public support for political and monetary union.

However, the two-day summit will be overshadowed by the mounting jobs crisis in Europe, which is threatening monetary union - an issue not strictly on the agenda.

Last night, Ministers emerged from a late-night dinner on Sunday saying they believed an agreement could be reached on the first day of the summit that would meet France's concerns over employment without unravelling Emu's carefully laid plans. "I am very optimistic we shall have an agreement," the European Commission President Jacques Santer said.

The original purpose of the summit was to sign a revision of the Maastricht treaty, signed in February 1992. This furthered the integration of the European Union and set out the structure of a single currency.

The new treaty will formalise arrangements for up to 10 more countries to join and produce a blueprint for reform.

The heads of government should sign it tomorrow although Germany and France remain at odds over the daunting problem of how to help the 18 million unemployed in the 15-nation bloc. The French appear to be demanding that the rules on participation in the single currency should be adjusted to prioritise jobs.

The German Finance Minister Theo Waigel yesterday reaffirmed Bonn's opposition to the EU funding a series of job- creating public works programmes.

The economic criteria set down at Maastricht to determine which countries qualify for the single currency remain divisive. Not even Germany looks able to meet the stipulation that a country's budget deficit should be no more than 3 per cent of gross domestic product. Without a swift deal on the pact at Amsterdam, the future of monetary union will be called into question.

The leaders will try to isolate the row over the single currency from negotiations on the Amsterdam treaty, setting out new power-sharing procedures in justice, home affairs, defence and foreign policy.

Tony Blair must bargain hard if he is to ensure Britain's views on jobs, European defence and immigration are taken into account. He hopes to win assurances that fish-quota hopping will be curbed.

Sarah Helm

Main points of the projected Amsterdam treaty

BORDERS

The draft text proposes abolishing all checks at borders between EU member states, to produce a border-free Europe within five years. There will be no controls at these frontiers on any people, be they EU citizens or third-country nationals.

The UK and Irish Republic, which already have a common travel area, are given the right to maintain their own border controls. The text also makes provision for the UK and Ireland to adopt power-sharing arrangements at external frontiers, and common internal security measures, should they choose. Britain is seeking water-tight guarantees that its sovereignty over border checks will not be impaired.

In parallel with abolition of internal controls, the draft text proposes that member states will put in place new harmonised immigration and asylum checks at their external crossing points with non-EU states. In order to allow freedom of movement within the EU, the idea is to create a strong ring-fence around the union to control outsiders entering.

SECURITY

To promote security within the new common travel area, the treaty proposes greater power sharing in crime-fighting, policing and judicial matters. The powers of Europol, currently a data-sharing body, will be boosted to allow more co-operation between forces and joint police actions.

Procedures for regulating security and border issues will come under control of the European institutions. Previously, most border and security power-sharing has been operated loosely, outside the EU, by a smaller group of states under the so-called Schengen Agreement. Schengen will now be subsumed by the EU procedures.

EMPLOYMENT

There will be greater co-ordination of policies to promote employment but national laws will not be harmonised.

The text balances the objectives of creating a high level of employment and social protection through promoting competitiveness. The European Commission is given new powers to propose guidelines on job creation, which can be accepted by a qualified majority of the council.

Britain and Germany have opposed a proposal for "incentive measures" to create jobs, which could lead to new community spending. Britain wants European Union policy to emphasise "flexible" labour markets. The text talks of "adaptable" workforces, responsive to change.

For the first time, the EU will incorporate the Social Chapter into the body of the treaty, as a result of Britain's decision to end its opt-out.

FOREIGN POLICY

It is hoped greater harmonisation will result from reducing use of the national veto and allowing member states to take decisions on strategy by qualified majority.

However, under a system of so-called "constructive abstention", a member state which does not wish to participate in a particular policy may choose not to, though it cannot prevent others from going ahead.

A veto over common strategies can only be used where a state has "important and stated reasons of national policy".

DEFENCE

The draft text paves the way for the EU to develop a common defence policy for the first time.

Contrary to the wishes of the UK and neutral countries the text proposes phased "integration" of the Western European Union, currently a defence coordinating body, into the EU. No dates are set, but over time the text envisages developing a military capacity for the EU.

DECISION-MAKING

(1) Flexibility

For the first time groups of member states are to be allowed, by their treaty, to share powers, without other EU members. The concept of "flexibility" or "differentiated integration" is highly complex and can only take place under a system of tight rules.

The interests of member states not taking part in a power-sharing plan must be protected and several EU policy areas are ring-fenced against flexible power-sharing, such as the single market. A majority of states must want to take part and any state should be allowed to join at a later date.

Britain wants to ensure that states should only be allowed to go it alone after a unanimous vote of all EU countries. However, the present text states that permission to share power "flexibly" can be taken by qualified majority in several areas of policy.

(2) Qualified majority voting

The new treaty will further reduce use of a national veto by extending voting by QMV to 11 new areas of policy, including environment, industry and culture. Use of QMV will also be extended to decisions on justice and immigration policy after the new shared powers have been up and running for three years.

INSTITUTIONS

The powers of the parliament to share in EU law-making are extended. The system of "co-decision" whereby the parliament's agreement is necessary before laws are finally passed by the Council of Minister is extended to new areas of policy. The parliamentary procedures are also simplified. The number of members of the parliament, after new member states join for Eastern and Central Europe, is capped at 700.

Controversial reforms of the other Brussels institutions, such as numbers of commissioners, have largely been deferred until enlargement is closer.

SIMPLIFICATION

The new treaty was intended to simplify and codify the EU's mind-bogglingly complex 12 treaties and acts, which contain 800 articles. However, the process has been abandoned for the time being. Some countries, including Britain, feared that simplification might actually lead to more power for Brussels.

The draft text does, however, propose that the complex texts which do exist should be more "transparent".

Citizens are to be given some new rights to see EU papers "subject to general principles and limits on the grounds of public and private interest to be decided by the community".

ADDITIONAL

SIDE-AGREEMENTS

Britain wants to see new proposals to curb fish-quota hopping as an addendum to the new treaty. However, no such proposals have yet appeared in the draft text.