BBC News - EU settles for 2% budget increase

The European Union has been forced to accept a 2% rise in its budget next year - much less than the increase it wanted of around 5%.

Farming absorbs the biggest chunk of the EU budget

Several EU governments, including the UK, had argued the demands by the European Parliament and Commission were "unrealistic" in a time of austerity.

EU negotiators settled for 2% after 15 hours of talks ending in the early hours of Saturday morning.

The British government said the result was an "excellent" deal for the UK.

"We have stopped the European Commission and European Parliament's inflation-busting proposals and have delivered on the government's promise to freeze the EU budget in real terms," said Britain's Financial Secretary to the Treasury, Mark Hoban.

The Commission had asked for 4.9% while the parliament wanted 5.2%

"Throughout this process, we have argued that, with member states facing tough decisions on spending at home, we could not afford these unrealistic demands," he added.

He said the focus would now move on to negotiations on the EU's long-term budget, for the period 2014-2020, with the UK expecting similar restraint in the face of a Commission request for 5% more.

Black hole

However there are concerns that, while the 2012 budget has been limited, the EU's spending commitments have not been cut accordingly.

The 2% increase for 2012 will take the budget up to 129bn euros (£110bn).

But member state governments gave in to the European Parliament's demands to allow EU spending commitments to rise to 147bn euros.

EU Budget Commissioner Janusz Lewandowski said this could lead to a hole in the accounts.

"There is now a serious risk that the European Commission will run out of funds in the course of next year, and will therefore not be able to honour all its financial obligations towards beneficiaries of EU funds," he said.

Rich and poor

Last year more than 80bn euros of the budget was allocated to farming subsidies and regional development spending.

With newer, poorer members of the EU receiving the most development spending, the argument over budget increases is often between them and the older, richer nations.

Last year Britain, France and Germany proposed that the EU budget be frozen until 2020, with any increases linked to inflation.