The European Union has reached a deal on a $1.25 trillion budget for 2014-2020.
The decision was taken on Thursday hours before an EU summit mulls how to get millions of jobless youths back into the workplace.
European Commission President Jose Manuel Barroso said a deal was reached at emergency breakfast talks he called between the Commission, which is the EU executive, the European Parliament leadership, and Ireland, which currently holds the rotating EU presidency.
The high-level compromise, which follows months of bitter dispute between European Union institutions and European capitals over the budget, must still be formally approved by parliament's 754 lawmakers.
At a summit in February, hardline Britain, backed by Germany and the Netherlands, shot down a Commission bid to increase the budget by 5.0 percent as unacceptable in times of austerity.
Instead, EU leaders for the first time ever agreed to cut spending by 3.0 percent but this in turn sparked an uproar in the parliament where members of European parliament said funds were needed to bring back growth and jobs to struggling Europe.
Parliament recently refused a compromise deal. It demanded greater flexibility in the budget, for example allowing funds not used in one area to be transferred to another sector.
MEPs also want a mid-term review in the hope that if the economy picks up, the spending constraints might be eased.
Barroso said Thursday's political deal included "more flexibility" on payments and commitments, expenditure on youth employment, research, the Erasmus student programme, help for small businesses and increased aid for Europe's most deprived.