European Leaders Cool Toward Jobless Plan : EC: Proposal includes public works projects. Critics cite cost and political concerns.

Leaders of the 12 European Community nations gave a lukewarm reception Friday to a sweeping proposal to combat soaring unemployment with costly public works projects, lower labor costs and more flexible labor markets.

The EC unemployment rate, 10.7% and growing (compared to 6.4% and falling in the United States), dominated the first day of the semiannual two-day EC summit.

Dutch Prime Minister Ruud Lubbers, echoing the sentiment of most of the leaders, said the EC was losing in its economic competition with the United States and Japan.

The EC’s 17 million unemployed people are straining Western Europe’s unemployment compensation programs and depleting its productive capacity.

“We cannot simply stand by and do nothing,” Egon Klepsch, president of the largely advisory European Parliament, told the EC leaders.

Jacques Delors, president of the European Commission, the EC’s executive body, proposed a target of 15 million new jobs by the year 2000: 5 million to keep up with population growth and another 10 million to reduce unemployment.

But many leaders of the EC nations objected to setting a precise target, for fear of criticism if they fail to meet it.

They also took issue with many of Delors’ specific suggestions for reaching the target, particularly his proposal to spend about $22.5 billion a year, much of it borrowed on Europe’s financial markets, to finance public works projects in telecommunications, transportation, energy and the environment.

“It would be absurd for the (Community) to increase its borrowing when member states are taking severe action to reduce theirs,” British Prime Minister John Major told his fellow EC leaders, according to Major’s spokesman.

German Finance Minister Theo Waigel said the EC nations, which received Delors’ proposal only four days earlier, needed much more time to examine it.

“These are things you have to think deeply about,” he said. “You can’t react to it here.”

But German Chancellor Helmut Kohl said Delors’ “white paper” at least provided a provocative starting point for discussions. In it, Delors also proposed:

* A “full-scale overhaul of employment policy,” with reduced unemployment compensation and greater government efforts to train workers and place them in jobs.

* More flexible labor markets: that is, fewer union-imposed restrictions on employers that seek to lay off workers because of technological advances.

* Reductions in Western Europe’s sky-high payroll taxes, which finance generous social welfare programs but also magnify the cost to employers of hiring more workers. Delors said a 30% to 40% reduction in social security contributions for low-cost workers would increase employment by 2%.

The EC leaders will have one more opportunity to consider Delors’ proposals this morning, but they are also scheduled to debate such thorny issues as the war in Bosnia before adjourning this afternoon.