EU announces surprise deal on 7-year budget

BRUSSELS (AP) -- The European Union may soon have a new seven-year, 960-billion-euro ($1.27 trillion) budget after a surprise breakthrough deal on Thursday.

European Commission President Jose Manuel Barroso announced the agreement Thursday after early morning talks with the president of the European Parliament and other officials from EU member states. Barroso said the deal includes more flexibility than earlier versions.

It still needs final approval by the European Parliament, but that is looking more likely thanks to this agreement. European Parliament President Martin Schulz called the deal "acceptable" and said he's "optimistic" that he will have a majority of parliament members backing it at a vote next week.

It includes the first cut to spending in EU history at a time when many of the bloc's countries are in recession and struggling to reduce their own national debt. The budget sets what the EU can spend on everything from infrastructure and farming to development aid and employment measures.

The 27 EU countries have been trying since last fall to cobble together a budget for the years 2014-2020. The talks were tough because some countries wanted to increase or maintain spending levels while others insisted it made no sense to increase the EU's budget while individual governments were imposing tough austerity policies at home.

EU government leaders agreed to an overall package in February, but the European Parliament asked for more spending and more say in the way the budget will be handled.

Last week, leading parties in the European Parliament said they wouldn't back an earlier budget deal. Representatives of the Socialists said they backed the deal after winning some concessions.

Ireland's leader, Enda Kenny, championed the agreement. Ireland had been hoping to crown its six-month presidency of the EU that ends Sunday with a comprehensive budget agreement.

"We have concluded an agreement here today ... and I think it is very significant," he told reporters in Brussels alongside Barroso and Schulz. "At the beginning of this year there was a lot of doubt ... about whether compromise could be negotiated between member states and the parliament. We have now succeeded in doing that."

Countries such as Britain have argued that in a time of austerity the EU budget is a drag on national coffers, while others like France said the economic crisis highlighted the need for closer and deeper ties, which would compel the EU to do more — and spend more — than in the past.

Separate from national spending, the EU budget is designed in part to balance out the economic development of its members by injecting funding into poorer countries. The EU has funded thousands of infrastructure and capital projects over the years, from the installation of broadband networks to the upgrade of road networks.

The EU budget also includes items meant to generate economic growth, such as research and development, increasing digitalization and creating a new, more accurate satellite navigation system. It also funds regulation and administration in such areas as mergers and competition, the review of national budgets to ensure they do not include excessive deficits and banking supervision.

If the EU fails to get a seven-year deal passed by the EU Parliament before the end of the year, the EU would have to revert to annual budgets which would make long-term planning difficult.