EU leaders entered the second day of their Brussels summit on Friday, switching their agenda from climate change to focusing on how to tackle high unemployment and rules requiring low deficit and debt levels.

On Thursday, outgoing European Commission head Jose Manuel Barroso reacted angrily to the publication by Italy's finance ministry of a confidential commission letter that had demanded clarification of Rome's intended rule-breaking budget.

Italian Prime Minister Matteo Renzi (pictured) later responded by threatening to highlight Brussels own spending: "We will publish data on everything that is spent by these palaces. We are going to have some fun," he said.

Renzi went on to insist that the "Italian budget poses no problems." Italy recently backed off from balancing its budget by 2017, with Renzi arguing that tax cuts are necessary to rev up Italy's stagnating economy.

Leeway needed, says Hollande

French President Francois Hollande said his administration had also received a letter from EU Economic Affairs Commissioner Jyrki Katainen requiring a reply by the end of the week.

France's budget forecast shows a 4.3 percent gross domestic product (GDP) deficit in 2015, far above the 3 percent required under EU rules.

Hollande's government argues that it needs leeway, given high unemployment, economic sluggishness and anti-EU sentiment exemplified by the European Parliament election in May.

While EU rules need to be respected, they also need to be implemented with "as much flexibility as possible," he said on Thursday.

Germany has been the most vocal in advocating for continued fiscal consolidation.

"We had times in Europe where deficits were very high and still we did not have growth. That is why we have to learn from the past," German Chancellor Angela Merkel said Thursday.

"I hope that we can find common solutions," she added.

News powers for commission

Last week, member nations which use the common euro currency submitted their spending plans for next year. The commission has vast new powers of oversight as the result of the eurozone debt crisis that began in 2008.

Italy's budget plan foresees a deficit within the EU's 3 percent of output ceiling but it misses structural reform commitments.

Barroso prepares to hand over to Juncker. In the middle, Germany's Chancellor Merkel

Jean-Claude Juncker, who will succeed Barroso as president of the European Commission next month, has placed hope on a 300-billion-euro ($379-billion) investment package. Details are not expected until later this year.

At the Brussels summit all 28 EU leaders were due to attend Friday morning's session. Those within the 18-nation eurozone hold separate talks on Friday afternoon.

ECB oversight

The European Central Bank (ECB) is preparing for next Sunday's scheduled release of the results of its unprecedented health check of 130 eurozone banks.

The ECB assumes the role of the region's banking supervisor on November 4.

The audit coincides with signs that the single currency area could be in danger of slipping into a dangerous downward spiral of falling prices, or deflation.

ipj/nm (dpa, AFP, Reuters)