EU leaders edge towards budget deal

European leaders were inching towards a deal in the early hours of Friday morning that would see the first cut in the EU's budget in its 56-year history.

David Cameron, who had demanded a freeze in real terms in the near-€1tn budget, was planning to claim victory after the European council president proposed a €34.4bn cut over the next seven years.

Herman Van Rompuy finally tabled his budget proposals in Brussels at 6am after a night of haggling at the EU summit that was described by one official as like a "bazaar".

Shortly before 6.30am, the EU's 27 leaders filed into the council chamber to debate Van Rompuy's proposal to cut the "payment ceiling", likened to a credit card limit, for the next seven-year budget from €942.8bn to €908.4bn. Van Rompuy proposed cutting the higher "commitment ceiling" from €993.6bn for the last budget from 2007-13 to €960bn for 2014-20.

Dalia Grybauskaite, the Lithuanian president who was the EU's budget commissioner during the last negotiations in 2005, indicated at around 4am that the EU was on the verge of agreeing its first budget cut. The EU has agreed seven-year budgets since 1993.

"It looks quite difficult still, because first time really we do see the chances for real budget cut, it was never been before," the president said. "Of course it is difficult for some member states, it is difficult for parliament to accept, and why we're probably in so, so long talks."

A broad framework was reported to have been agreed, but hard bargaining still lies ahead at the Brussels summit.

Leaders are studying proposals to fix the ceiling for spending at 960bn euros, a cut of more than 12bn euros from a proposal at a November summit.

That meeting failed to reach agreement amid deep divisions among members over cuts - a key UK demand.

British Prime Minister David Cameron said again on Thursday that he would not accept a deal unless further cuts were made.

He said the figures being proposed for 2014-2020 "need to come down - and if they don't... there won't be a deal".

Any one of the 27 member states can veto a budget deal - a fact which makes the negotiations all the more difficult.

EU sources say the new proposal will cut transport, energy and telecommunications projects, as well as pay and perks for EU staff.

If agreed, the €12bn cut would make this the first multi-annual EU budget to see a net reduction.

The summit pits Cameron and some northern European allies - who want EU spending reined in tightly - against mostly eastern and southern European countries who want to protect the big budget areas of agriculture and cohesion funding for the poorest regions.

France's President Francois Hollande, a socialist, champions European "solidarity" and opposes the deeper cuts urged by Cameron. Hollande signalled some readiness to compromise, but said he would not accept a budget that "disregards agriculture and ignores growth".

France is the biggest beneficiary from the EU's Common Agricultural Policy, which accounts for about one-third of the entire budget.

The Commission - the EU's executive body - had originally wanted a budget ceiling of 1.025tn euros for 2014-2020, a 5% increase. In November that ceiling was trimmed back to €973 bn, equivalent to €943bn in actual payments.

But with other EU spending commitments included, that would still give an overall budget of €1.011tn.

The UK, Germany and other northern European nations want to lower EU spending to mirror the cuts being made by national governments.

The biggest spending areas - agriculture and regional development - are largely ring-fenced because of strong national interests.

The budget amounts to about 1% of the EU's overall GDP - it is dwarfed by the combined national budgets.

German Chancellor Angela Merkel - seen as the main powerbroker in the summit - had already acknowledged that the talks would be "very difficult".

One European Parliament spokesman warned that more staffing cuts would leave the EU Commission unable to do its job, as EU institutions integrated further and took on new responsibilities in response to the debt crisis.

The split in the EU reflects the gap between richer European countries and those that rely most on EU funding.

The argument for higher spending is supported by many countries that are net beneficiaries, including Poland, Hungary and Spain.

Others, mostly the big net contributors, argue it is unacceptable at a time of austerity. Germany, the UK, France and Italy are the biggest net contributors.

Failure to reach agreement on the seven-year budget would mean the EU rolling over annual budgets - a method that would be more expensive and would complicate long-term projects.