EU cuts budget after alarming reports

European Union negotiators agreed to a two percent rise in the bloc's budget for next year to 129 billion euros ($174 billion), following more than fifteen hours of talks which ended in the early hours of Saturday morning.

The deal was seen as a victory for cash-strapped capitals grappling with Europe's debt crisis, which had opposed demands by EU lawmakers to increase the budget by more than 5 percent.But some EU officials said limiting the budget rise to forecast inflation for next year could leave the bloc unable to pay its bills and threaten the EU budget's AAA credit rating.

"This is clearly an austerity budget, as most member states are in the midst of a serious financial crisis," said EU Budget Commissioner Janusz Lewandowski, who had originally proposed a five percent rise in spending in 2012."

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.

That is because while agreeing to limit their contributions to the EU budget to 129 billion euros next year, governments gave in to the European Parliament's demands to allow EU spending commitments next year to go up to 147 billion euros.

"Today's commitments become tomorrow's payments, so they are playing a very dangerous game indeed," said one EU official.More than two thirds of the EU budget is spent on subsidies for farmers and regional aid funds, which finance road construction, environmental clean-ups and other projects.

Talks on the EU's spending in 2012 are seen as a prelude to a tougher fight on the bloc's next long-term budget for 2014-2020.