EU poised to adopt first ever austerity budget

EU leaders appeared ready Friday to cut back the bloc's budget for the first time in six decades, with a tentative agreement to trim spending by three percent emerging from marathon talks.

After 24 hours of talks lasting through the night, the bloc's 27 leaders were due to return to the negotiating table at 1330 GMT after ironing out fresh differences.

British Prime Minister David Cameron, apparently backed by German Chancellor Angela Merkel, led a sustained push to prevent any increase in spending at a time of austerity for all.

France, along with Italy, fought to protect spending it sees as essential to boost growth and jobs at a time of record unemployment, and indications Friday were that the two camps were ready to call it a deal.

"It is not a fantastic compromise deal but it is acceptable," a French diplomatic source told AFP.

But as the afternoon session was delayed, it emerged that agreement on a key flexibility provision, which France wanted to allow greater spending under certain conditions, was being challenged by Cameron.

"Cameron has gone back on his word over 'flexibility' on the budget which is essential for (French President Francois) Hollande to accept the deal," an EU source said.

Other sources confirmed that this provision had become a sticking point but it was then announced that summit chair and EU President Herman Van Rompuy would submit a revised draft for the 1330 GMT session.

An initial draft worked out overnight sets 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 perent of the bloc's gross domestic product.

It would represent a 3.0 percent cut from the 2007-13 budget and is less than 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 gross domestic product.

Amid the cuts, EU leaders managed to find six billion euros for a new fund to tackle youth unemployment.

Jobless numbers across the EU are currently over 26 million, with nearly three out of five under the age of 25 out of work in Spain and Greece.

If the talks do finally deliver an accord, there is another important hurdle still to clear -- the European Parliament which must approve it and lawmakers have already made clear they are in not in a mood for more austerity.

Parliament head Martin Schulz said bluntly on Thursday that he and the assembly might not accept a budget which would compromise EU programmes and undercut its future.

The draft showed key budget areas -- the Common Agricultural Policy support payments to farmers and Cohesion Funds, a crucial source of money for new EU members seeking to catch up with their peers -- to be largely untouched compared with the November figures.

But plans to use 40 billion euros to leverage private investment in cross-border energy, transport and digital networks was slashed by a quarter and EU administrative expenditures were cut as well.

Some of the roughly 35,000 EU civil servants have already begun strike action over fears they will lose their jobs and the perks.

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.

Hollande, meanwhile, said cuts in support for farmers and investment for growth would be his red lines but he may be able to argue that globally, he has managed to protect key areas of concern to Paris.