EU agrees historic cut to budget after marathon talks

European Union leaders agreed to cut back the bloc's budget for the first time in six decades on Friday after marathon all-night talks driven by sharp differences over priorities for the next seven years.

"Deal done!" summit chair and EU President Herman Van Rompuy said on Twitter after more than 24 hours of tough talks between the bloc's 27 heads of state and government.

"There's a lot in it for everybody", he said shortly after, adding that the 2014-2020 austerity budget embodied "a sense of collective responsibility from European leaders."

Pushed by British Prime Minister David Cameron, who said the EU could not increase spending in times of austerity, leaders agreed a cut of around three percent compared with the previous budget.

It was "a good deal for British taxpayers", said Cameron, adding that for a growing eurosceptic audience at home that it also "shows that working with allies it is possible to take real steps towards reform in the European Union."

The British leader's stance had put him on a collision course with countries such as France who wanted EU investment to boost growth and tackle unemployment

France, along with Italy, fought to protect spending it saw as essential to boost growth and jobs at a time of record unemployment.

But French President Francois Hollande deemed the final figures on the bloc's multi-year budget "a good compromise."

"It was an agreement that as usual was long to produce, but which I believe is a good compromise," he said.

German Chancellor Angela Merkel said the end deal "was worth the effort" and she "was glad that everone showed the needed willingness to compromise."

A draft worked out overnight set 2014-20 actual spending or "payments" at 908.4 billion euros ($1.2 trillion), with an absolute ceiling of 960 billion euros for spending "commitments" to the budget.

That is just one percent of the bloc's gross domestic product (GDP).

It would represent a 3.0 percent cut from the 2007-13 budget, below the 973 billion euros Cameron and allies such as the Netherlands rejected at a budget summit in November that collapsed without a deal.

In the EU budget process, commitments refer to the maximum amount that can be allocated to programmes while actual spending or "payments" is usually lower as projects are delayed or dropped.

Originally, the European Commission had wanted a 5.0 percent increase in commitments to 1.04 trillion euros ($1.4 trillion) -- just over one percent of the EU's total GDP.

The final leaders' agreement, however, was only part of the battle as there is another important hurdle to clear -- the European Parliament must approve and lawmakers are not in a mood for austerity.

The parliament, which since late 2009 has had more decision-making powers within the bloc, must now live up to its responsibilities and pass it, Van Rompuy said.

But the heads of the four largest groups in Parliament, which is to vote on the budget in July, said they would not accept the budget "in its current state" as it would not help boost the struggling EU economy.

Cameron, who last month risked isolating himself with a decision to hold a referendum on Britain's membership of the EU, insisted at the opening Thursday that the figures had to be cut.

"When we were last here in November, the numbers that were put forward were much too high. They need to come down -- and if they don't come down, there won't be a deal," Cameron said.