By Paul Taylor and Marcin Grajewski (Reuters)
BRUSSELS (Reuters) - European Union leaders agreed a long-term budget that put the troubled 25-nation bloc back on track on Saturday after Britain gave up part of its cherished EU rebate to help boost aid to poor new, east European members.
The late night deal after two days of haggling averted the threat of financial paralysis and restored some confidence after a year of setbacks marked by the rejection of the EU's first constitution by French and Dutch voters.
The breakthrough came when Britain agreed to cut its rebate by 10.5 billion euros ($12.57 billion) over seven years and raised the 2007-2013 budget to 862.3 billion euros, or 1.045 percent of EU output from 1.03 percent in an earlier proposal.
"This is about getting an agreement that allows Europe to move forward," Prime Minister Tony Blair told a 3 a.m. (0200 GMT) news conference, stressing the deal would launch a massive shift of resources to the ex-communist newcomers.
He insisted that an agreement on a comprehensive review of all EU spending and revenue in 2008/9 created an opportunity to modernise the budget and overhaul farm subsidies which swallow 43 percent of the bloc's spending.
European Commission President Jose Manuel Barroso, who had sought a far bigger budget, said the EU had salvaged its public credibility with this accord. "What would be the signal to public opinion if we can't agree on a budget?" he asked.
Failure would have prevented the 10 new members from using the hefty funds available to modernise their economies and bring them into line with their wealthier western cousins.
French President Jacques Chirac hailed the compromise as "a good deal for Europe" and praised Blair's political courage in making a major gesture on reforming the rebate.
But the British leader was forced to defend himself against Eurosceptical British journalists who accused him of sacrificing billions in taxpayers' money without any guarantee that France would accept changes to farm subsidies before 2014.
"You see what I've got to deal with," he told Barroso in an aside caught on an open microphone after their news conference.
REBATE PARITY
Polish Prime Minister Kazimierz Marcinkiewicz and several other leaders paid tribute to new German Chancellor Angela Merkel for having helped broker the deal and offering extra cash at the last minute to meet the new member states' demands.
"Merkel at the last minute gave 100 million euros extra for Poland which was the most beautiful and wonderful gesture of solidarity," Marcinkiewicz told a news conference.
The review clause was a fudge between Britain's drive to cut farm subsidies which mostly benefit French farmers before 2013, and France's insistence that the level of agricultural payments must remain pegged until then under a 2002 deal.
Blair said it was only fair that Britain pay its share for the EU's enlargement, which it had long championed. The rebate would still rise over the next seven years and Britain's net payments to the EU would be in rough parity with those of France and Italy, a key British objective, he said.
However, his domestic opposition assailed him for giving up any part of the totemic refund which prime minister Margaret Thatcher won in 1984.
"Seldom in the course of European negotiations has so much been surrendered for so little. It is amazing how the Government have moved miles while the French have barely yielded a centimetre," opposition Conservative foreign affairs spokesman William Hague said in London.
Britain won the rebate when it was the EU's second poorest member and benefited little from farm subsidies, which then swallowed up 70 percent of the budget. It is now second richest and agriculture accounts for 43 percent of EU funds.
France had said a fair British share would be an extra 14 billion euros' worth of contributions over seven years.
Diplomats said Merkel, acting as an honest broker at her maiden EU summit, had proposed the higher expenditure despite Germany's budget deficit woes to avert a European crisis.
I'm happy that there are finally some good news for the EU now. 
to Blair for finally making a concession and to our Chancellor Merkel for helping the compromise to be found and redirecting funds originally intended for Germany to Poland. It's good to see that our politicians have managed to look beyond selfish own national interests and act for the benefit of the whole community!
