(CNN) -- European Union leaders for the first time in the bloc's history agreed to a cut in spending as they thrashed out a seven-year budget Friday in marathon talks in Brussels, Belgium.
The deal, which covers the period from 2014 to 2020, will limit actual EU spending to €908 billion ($1.2 trillion), with a spending ceiling of 959 billion euros.
The European Commission, the executive arm of the EU, had initially proposed a 5% increase to its budget for the seven-year period, to about €1 trillion ($1.4 trillion).
European Council President Herman Van Rompuy hailed the deal reached Friday -- after talks he said were the longest of his presidency -- as balanced and oriented toward future competitiveness and growth.
"It was no easy task," he said, "but it was worth working for."
The Multiannual Financial Framework, as the seven-year budget is known, must still be approved by the European Parliament.
The compromise agreement is not the perfect deal for all 27 EU member states, Van Rompuy said, but it is realistic and shows that European leaders are facing up to their responsibilities at a time of economic difficulties across the region.
The focus of the budget is on growth and jobs, he said, with funding directed toward such areas as education, research and development, tackling youth unemployment and improving transport networks.
It also maintains development aid for the poorest nations of the world, Van Rompuy said, and will allow the EU to remain engaged with vital global issues such as climate change and nuclear safety.
European Commission President Jose Manuel Barroso said the body would have preferred an outcome closer to the original proposal it put forward.
But, he said, "It must recognize that the political deal made now was the highest possible that heads of government could reach."
After difficult negotiations, the budget is "not perfect but offers a basis for negotiations with the European Parliament," he said. "It was a marathon but it was a marathon for very important results."
A previous summit in November collapsed without a deal amid deep divisions over EU spending at a time of wide austerity.
The budget wrangling comes as the continent struggles with serious economic challenges that have reverberated globally.
The European Union's yearly spending amounts to about 1% of the region's annual economic output.
Most funding comes from member-state contributions. Germany is the largest contributor, providing about 20% of the total budget. Other net contributors include Britain, France, the Netherlands, Denmark and Sweden.
Britain was among the nations pushing for cuts to spending, with Prime Minister David Cameron insisting that the EU "should not be immune from the sorts of pressures that we have had to reduce spending, find efficiencies and make sure that we spend money wisely."
France was keen to protect the budget for agriculture, which was spared further cuts in the new deal.
CNN's Kendra Wates contributed to this report.