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BERLIN (Reuters) - Germany is banking on bilateral deals to fight record youth unemployment in the euro zone, agreeing to cooperate with several countries to bypass pan-European bureaucracy.
On Wednesday, Finance Minister Wolfgang Schaeuble and Portugal's Vitor Gaspar said Germany's state development bank KfW KFW.UL would help set up a Portuguese financial development institution and would "provide technical as well as financial support".
Youth unemployment has reached a record 42 percent in Portugal and 57 percent in Spain as governments squeeze spending and raise taxes to try to get national finances under control, a condition for receiving international bailouts.
"The core of our work ... is to speed up the efforts against unemployment, especially youth unemployment," Schaeuble said at a joint news conference with Gaspar after discussions in Berlin.
"(Youth unemployment) is not a Portuguese problem. It's not a German problem. It's a European problem. We all need to deal with it... at a bilateral level as well as at a European level. That's why we do it we do it with other governments as well."
Berlin announced a deal with Spain last month to channel money from private investors into credit-starved small- and medium-sized business.
Berlin also has said it wants to work together with Paris on an initiative to fight youth unemployment in Europe. Schaeuble said it would focus on involving business and making better use of European public money that has already been pledged.
The details of the initiative will be presented at a conference in Paris on May 28. Chancellor Angela Merkel plans to invite EU labour ministers to Berlin on July 3.
Policymakers in Berlin say in private that they are frustrated by a lack of urgency at the European Commission and that efforts to help such companies are held up by EU state aid rules meant to prevent unfair competition.
Germany believes such rules could be made more flexible under a bailout program. The Commission declined comment.
Economists and German opposition politicians said that while the job-creation efforts were going in the right direction, they should have been implemented alongside the austerity measures.
"The finance minister's desperate attempts to rescue the German image on the Iberian peninsula come too late," Carsten Schneider, budget policy expert for the opposition Social Democrats, said.
"The efforts for growth and employment should have been made at the beginning of the adjustment program, not the end."
Spain's population shrank for the first time on record last year as young people and immigrants fled the crisis.
No details were given of the size of the program to help Portugal but Gaspar said KfW would extend credit lines and take indirect equity stakes in small- and medium-sized companies.
Germany and Spain are looking at co-sponsoring a privately managed fund to attract 5 billion euros ($6.4 billion) of private money from investors in the two countries, as well as Asia, a Spanish government source has said.
The source, who spoke on condition of anonymity, said the fund would focus on long-term investing in Spanish small and mid-cap companies, including the non-bank financial sector.
Spain's and Germany's labour ministries announced labour market cooperation plans late on Tuesday, including enrolling Spanish youths in German vocational training.
Additional reporting by Andrei Khalip in Lisbon, Jan Strupczewski in Brussels and Fiona Ortiz in Madrid; Editing by Michael Roddy