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The shape of things to come

First-ever cut to EU’s long-term budget.

Commitments and payments

Was everyone a winner?

Energy, telecoms and transport take a hit

The CAP gets leaner, but not greener

A budget that promotes growth?

Member states find it tough to cut back administrative spending

Denmark the big winner from rebate negotiations

Small increase in aid funding

MEPs threaten to derail budget deal

Member states will need to be flexible

Just before daybreak on Friday (8 February), the leaders of the European Union’s member states emerged from 15 hours of negotiations with a deal on the headline figures of the EU’s next long-term budget: spending commitments in 2014-20 are not to exceed €960 billion, they decided. They capped actual payments at €908bn.

The figure of €960bn, representing 1% of the EU’s gross national income, reflects exactly the demands of Angela Merkel, Germany’s chancellor, and somewhat exceeds what had been sought by the Union’s budget hawks – David Cameron, the UK’s prime minister, Mark Rutte, the Dutch prime minister, and Fredrik Reinfeldt, Sweden’s prime minister. For that group it was an historic achievement: for the first time in the EU’s history, a multi-annual budget has gone down rather than up.

With the headline figures agreed, it took another ten hours of talks to thrash out the budget headings that make up the totals. For many governments, the allocations to particular headings are far more important than the overall ceilings; it is the allocations, not the ceilings, that determine the net position of each member state – how much it pays into the EU budget and how much it gets out of it.

Politically, however, the ceilings were of paramount importance for Cameron, Rutte and Reinfeldt. This small but influential, and vocal, group among the Union’s net contributors had demanded big cuts not only to the European Commission’s original proposal for the next multi-annual financial framework (MFF), but also to a proposal made by Herman Van Rompuy, the president of the European Council, at a failed summit on the budget last November.

The Commission proposal from June 2011 set a commitment ceiling of €1,025bn (adjusted in July 2012 to €1033bn, primarily to allow for Croatia joining the EU in July this year). Van Rompuy’s proposal set the ceiling at €973bn.

Merkel emerged as a broker between the budget hawks and other member states, which amplified her influence over the outcome: the figure that was agreed in the end was essentially hers.

The leaders, Merkel said, had struck a reasonable balance between fiscal consolidation (with the tight ceilings) and a stronger focus on stimulating economic growth through research and similar policies (with the adjusted budget headings).

Indeed, the sub-heading ‘competitiveness for growth and jobs’ sees the largest increase by far from the current multi-annual budget – €34.1bn, or 37.3%. Agricultural payments and regional funds, however, often described as backward-looking policies, saw the biggest cuts, of 17.5% for direct farm subsidies and 8.4% for regional aid. But, in terms of absolute figures, the €126bn allocated to competitiveness spending pales in comparison with direct farm subsidies (€278bn) and regional aid (€325bn).

The grand bargain of these budget talks, diplomats say, had been struck even before the summit began. The EU’s less competitive economies (including France, Italy and Spain) agreed to lower overall spending in return for less drastic cuts to farm and regional spending (of which they are major beneficiaries). The budget hawks achieved a lower overall budget, but not quite as low as they wanted. Everyone got a budget that is both lower – demonstrating fiscal probity – and that allocates more money to competitiveness spending, demonstrating a determination to stimulate growth.

Van Rompuy, one of the winners of the summit because a deal was agreed, said the compromise was “perhaps nobody’s perfect budget, but there is a lot in it for everybody”.

If the grand bargain was in place even before the summit, it still took gruelling negotiations to thrash out the specifics. The summit began on Thursday at 3pm, on schedule – but nothing else went according to Van Rompuy’s plan, or at least the plan he had made public beforehand.

He had said that he would present a new draft budget to the leaders upon their arrival and then, after the customary exchange of views with Martin Schulz, the president of the European Parliament, the leaders would begin their budget talks. Instead, he postponed the session with Schulz several times (it eventually took place just after 8.30pm), and held meetings in small groups. The new draft budget was not presented to negotiators until 6am on Friday.

What made the deal possible were the extra elements thrown into the negotiations to satisfy the interests of individual leaders. These allowed each leader to go home and declare victory. For instance, Austria, which would have lost the rebate on its contribution to the EU budget if the Commission’s proposal had been accepted, managed to retain it, albeit at a mere €60 million. Denmark, which has no rebate under the current long-term budget, will receive one under the next. Hungary, which under previous proposals would have been the biggest loser from cuts to the cohesion policy, received an extra allocation of €1.56bn. The Czech Republic got €900m. Bulgaria, Lithuania and Slovakia received more EU funding for the decommissioning of their nuclear power plants than initially proposed by the Commission.

What will follow is a battle between ministers from Ireland, representing the member states, and MEPs, whose consent is required for the multi-annual financial framework to be adopted. That battle is likely to be tough, as MEPs are expected to question both the grand bargain and the small compromises that made last week’s deal possible.

In the end, however, few observers doubt that it will be this deal, plus or minus a few million here and there, that will shape the Union’s finances for the rest of the decade.