The deal reached by the 25 leaders of the European Union early on Saturday morning, has given the bloc the push it needed to avoid a financial crisis, following the political debacle it faced earlier this year.

Last June, under the Luxembourg presidency of the EU, there had been a deadlock in the talks on the EU budget for 2007-2013, leading many observers to question the future of the union. At that point in time, the EU was still nursing a double setback when referenda in both France and Holland had rejected the EU Constitution.

There were strong fears that last week’s summit in Brussels – this time under the UK presidency – would have been another failure. The initial proposals put forward by Britain were rejected, and subsequent suggestions were still deemed “not enough” by many of the member states.

But talks later progressed as further proposals brought the members closer, until an agreement was finally sealed in the early hours of Saturday.

Old divisions over EU financing were bridged, as both Britain and France made concessions to secure an accord which puts the union back on its feet, after months of instability that threw the union’s future in jeopardy.

Two days of negotiations, which included several rounds of bilateral talks, finally led to an approval as British Prime Minister Tony Blair offered to slash Britain’s lucrative rebate and turn the savings over to the 10 countries, including Malta, that joined the bloc in 2004.

In return, France agreed to a spending review that could lead to cuts in the EU’s massive agricultural subsidies, of which France is a major beneficiary. This review will take place some time in 2008 and 2009.

“This is an agreement that allows Europe to move forward, allows us to demonstrate the right solidarity,” Mr Blair said after the agreement was finalised.

The EU spending in the seven years starting in 2007 was pinned at 1.045 per cent of the Gross National Income, a move that many believed would have been incompatible with the EU’s wish to take on a bigger economic and political role on the world stage. France and Germany had pushed for higher spending, after Britain had originally sought to cap it at 1.03 per cent of GNI.

A compromise was ultimately reached, with French President Jacques Chirac saying that “once more we have overcome a crisis”.

In her first EU summit, German Chancellor Angela Merkel worked to keep the EU’s major powers together, and to draw in the eastern European nations, hoping for a more lucrative budget to fund their integration into the bloc.

The accord is “a signal of hope for the development of the European Union. It is a good compromise,” she said.

The EU was badly seeking to bounce back from the political setback of having its draft constitution rejected in both France and Holland. On top of that, budget talks in June had collapsed over the British rebate issue.

“Europe has avoided paralysis. Europe is on the move again,” said an exultant EU Commission President Jose Manuel Barroso.

Failure to reach an accord would have paralysed the EU’s finances, which would have been left frozen at 2006 levels, and hobbled economic development in the poorest member states. It also would have further undermined the credibility of the bloc.

The Maltese government has expressed its satisfaction that the EU summit ended with an agreement, which sees Malta getting E805 million in the seven years covering the budget – E450 million net, when one removes Malta’s contribution.

In all, Malta will receive some Lm27.5 million a year, which excludes funds from other EU programmes, including those under Justice and Home Affairs to tackle irregular immigration.