By Charlie Dunmore and Jan Strupczewski
BRUSSELS (Reuters) - European Union leaders reached agreement on the first ever cut in their common budget on Friday after 24 hours of intense negotiations, seeking to placate millions at home struggling through government cutbacks and recession.
The expected deal met the demands of northern European countries such as Britain and the Netherlands that wanted belt-tightening, while maintaining spending on farm subsidies and infrastructure to satisfy the likes of France and Poland.
It is the first net reduction to the EU's long-term budget in the bloc's history, representing a decrease of around 3 percent on the last budget and shaving spending in areas such as infrastructure, bureaucracy and scientific research.
Last-minute haggling over precisely how to divide up the 960 billion euros ($1.3 trillion) to be spent between 2014 and 2020 dragged out the process, before Herman Van Rompuy, the president of the European Council and chairman of the summit, announced that a definitive deal had been struck among the leaders.
"Deal done!" he said in a message posted on Twitter.
At a news conference shortly afterwards, battling to stay alert after nearly 36 hours awake, Van Rompuy said the agreement was a budget of moderation that reflected straightened times.
"We simply could not ignore the extremely difficult economic realities across Europe, so it had to be a leaner budget," he said. "For the first time ever, there is a real cut compared to the last multiannual financial framework."
The deal must now be approved by the European Parliament, where leading legislators have already expressed opposition. Securing parliamentary approval is likely to take several months and is far from guaranteed.
After negotiating through the night, leaders broke for a brief rest, allowing German Chancellor Angela Merkel to swap her green jacket for a lilac one, and returned to address a list of questions, including how to satisfy smaller countries such as Romania and Bulgaria among the 28 states covered by the budget.
Mindful of their restive voters, Northern European countries were adamant that as they shrink spending at home and grapple with the aftermath of the global financial crisis, the European Union had to do the same by cutting headline spending.
Around 12 billion euros was cut from the last budget proposal, made at a summit in November, bringing the total reduction from the European Commission's original blueprint to 85 billion euros. European Commission President Jose Manuel Barroso said he was disappointed, but understood the logic.
While vast as a headline figure, in annual terms the budget amounts to just 1 percent of total EU economic output.
The cuts agreed fell mainly on spending for cross-border transport, energy and telecoms projects, which were reduced by more than 11 billion euros. Pay and perks for EU officials - a top target for Britain - were lowered by around 1 billion euros.
Spending on agriculture was spared further cuts, and there was an increase of about 1.5 billion euros on rural development over the seven years, satisfying France, Italy and Spain.
Even with a deal, around 40 percent of the spending will still be dedicated to farming, something that frustrates many northern European states, which want a more dynamic budget.
At the same time, officials said money had been set aside for measures to stimulate economic growth, for research and for structural funds to flow to countries worst hit by the economic crisis, including Greece, Ireland, Portugal and Spain.
There were also stipulations for green investment and 6 billion euros for a fund to combat youth unemployment via apprenticeships in hard-hit countries.
The deal still faces further hurdles, not least at the bloc's parliament. "The European Parliament will not accept this deficit budget if it is adopted in this way. That is certain," the parliament's president Martin Schulz said.
Van Rompuy urged the parliament to be responsible and to reflect carefully before deciding to reject the spending plan.
In recent weeks, Van Rompuy has been in touch with every EU leader to assess where the contours of an agreement may lie.
But reaching a deal was never going to be a simple since it also involves delicate negotiations over rebates - amounts countries get reimbursed after they have made contributions.
Denmark won a refund of around 130 million euros a year, but other rebates were trimmed or modified. The Czech Republic was among a small group of countries that fought for final extra distributions, mostly for funds to build infrastructure.
The EU calculates two budget numbers: a headline 'commitments' figure that sets a ceiling on how much can be paid out, and a lower 'payments' figure that indicates what will actually be spent.
The baseline payments figure in the framework agreed on Friday was 908 billion euros, a figure low enough to convince Britain, which focuses on payments rather than commitments, that it was getting a satisfactory deal.