Chancellor Angela Merkel stressed that she been successful in negotiations at the EU summit two weeks ago, and that the proposed budget for 2014-2020 was a move in the right direction for the 500 million inhabitants of the European Union.

"This is the first budget that has a ceiling curbing expenditure," she said in the Bundestag lower house of parliament on Thursday, claiming that the proposals reflected economic reality in this time of crisis.

"The people of Europe would not have been able to understand why everyone in Europe has to cut back - apart from the EU itself,” she said to the applause of the parliamentarians of her conservative coalition of the Christian Democratic Union (CDU), Christian Social Union (CSU) and Free Democratic Party (FDP).

The proposed budget sets an absolute ceiling of 960 billion euros ($1.3 trillion) on EU spending for the seven-year period from 2014 to 2020 and caps actual spending at 908.4 billion euros.

This represents a three percent cut compared to the bloc's current long-term budget, which expires at the end of 2013.

Merkel singled out the increase in funding for research and innovation by over 37 percent as an investment into the long-term competitiveness of the European Union and stressed that the six billion euros pledged to combat youth unemployment across the EU were a step in the right direction, seeing as youth unemployment stands at 25 percent or more in at least a third of the bloc's 27 members.

Merkel, along with British Prime Minister David Cameron, had been among the European leaders who pushed for cuts to the original budget draft.

Merkel admitted that Germany would remain one of the main contributors to the EU budget and would even see this expenditure increase in the coming years. But she argued that the latest budget plans were fair as the more affluent countries should shoulder more of the economic burden.

She praised as "flexibility" the new provision which foresees a regular evaluation and reassessment every two years of the expenditures, which would enable readjustments to ensure that money is spent where it is really needed.

Merkel went on to welcome the plans for a new trans-Atlantic economic cooperation between the EU and the US, stressing that as one of the world's leading exporters Germany was going to benefit especially from the creation of an joint economic zone.

Austerity and injustice

Peer Steinbrück, the main opposition Social Democrats' candidate for chancellor in September's general election criticized the budget proposal as putting austerity before growth incentives.

He said the money earmarked for projects to combat youth unemployment was insufficient, especially as it would be offset by cuts in other areas.

Steinbrück stressed that more resources were necessary to move Europe forward and accused Merkel of falling short of her promises and announcements.

He lashed out at Merkel's junior coalition partner, the liberal FDP, for back-pedaling on the financial transaction tax for banks, which the German parliament had approved a few weeks ago.

"The 30 to 35 billion euros in revenues from this tax would be six times the amount earmarked to combat youth unemployment,” he said.

To the applause of opposition legislators from his Social Democrats and the Greens he argued that it would only be fair to get the banks, which had been bailed out by European governments, to now pay towards mitigating the effects of a crisis they were partly to blame for.

Steinbrück, who has just returned from a trip to Athens, said that Merkel's government was turning a blind eye to the realities of every day life in crisis stricken southern European countries. He called for the introduction of minimum wages across the EU.

The draft budget still has to be approved by the European Parliament, and there are indications that it will trigger a heated debate on the future course of the European Union.

rg/pfd (dpa, Reuters)