After two days of arduous talks, British Prime Minister Tony Blair won approval early Saturday of a final blueprint for the EU's 2007-2013 budget by offering to slash Britain's lucrative rebate and turning the savings over to the 10 countries that joined the bloc last year.
In return, Blair asked members, particularly France, to agree to a spending review in 2008-09 that could lead to cuts in the EU's massive agricultural subsidies. France benefits significantly from farm subsidies.
"This is an agreement that allows Europe to move forward, allows us to demonstrate the right solidarity," Blair said.
Blair reduced EU spending from 2007 to 2013 to 1.045 percent of Gross National Income, a move many thought would be incompatible for an EU wishing to take on a bigger economic and political role on the world stage.
Yet that offer was already a concession to France and Germany, which push for more spending after Britain originally sought to cap spending at 1.03 percent of GNI.
"Once more, we have overcome a crisis," French President Jacques Chirac said.
In her maiden EU summit, German Chancellor Angela Merkel worked hard to keep the EU's major powers together and to draw in the eastern European nations hoping for a more lucrative budget to fund their integration into the bloc.
The accord is "a signal of hope for the development of the European Union. It is a good compromise," she said.
The EU was badly seeking to bounce back from the political setback of having its draft constitution rejected in both France and the Netherlands. On top of that, budget talks in June collapsed over the British rebate issue.
Blair, whose country holds the rotating EU presidency, ended that bitter deadlock over finances by offering further cuts to his country's disputed rebate.
He proposed a total financial package of euro862.4 billion (US$1.04 trillion) for 2007-2013, bowing to French and German pressure to increase an earlier offer by some euro13.2 billion (US$15.8 billion).
Risking a political backlash at home, Blair offered to cut Britain's budget rebate by euro10.5 billion (US$12.6 billion) over seven years, a substantial increase into EU coffers that would help fund economic development in the 10 new member states across eastern and central Europe.
Chirac lauded Blair's commitment on securing a deal.
"I want to underline the politically difficult gesture Prime Minister Blair made by accepting a rebate that will be changed drastically," he said.
EU leaders met for two days of grueling talks, meeting for a final session early Saturday after hours of wrangling over the complex financial package.
Failure to reach a deal would have paralyzed the EU's finances, left spending frozen at 2006 levels and hobbled economic development in the poorest regions. It also would have further undermined the credibility of the bloc.
The tense negotiations had split the 25-nation bloc into two camps: one led by Blair, the other by his old sparring partner French President Jacques Chirac, both of whom are trying to shape the future direction of the European Union.
The budget fight laid bare two different visions of Europe.
Britain is demanding a leaner, more competitive bloc that can cope with the challenges of globalization and insists the EU must refocus its spending on research and development, science and technology.
France wants a slower pace of change, protecting generous farming subsidies and welfare protections as a way to safeguard a rural way of life it sees threatened by globalization.