British Prime Minister David Cameron hailed the 3.3 percent reduction in the seven-year budget, indicating his government intended to celebrate the measure as a personal victory for the Conservative Party leader, who has been calling for EU reforms.
Critics said the cut was tokenistic as the European Union intends to spend $1.3 trillion taxpayers' money over the period.
How much of the spending will stimulate EU economies and how much will go toward the European Union's wasteful activities remains to be seen, said the critics, most of them from larger and richer member countries.
Calls for reforms such as doing away with dual seats of European Parliament in Strasbourg and Brussels were ignored.
EU leaders are increasingly split into several camps. The North Europeans want more austerity and southern and eastern Europeans want a continued flow of EU funds into their economies. British aides said they saw more support for their calls for drastic spending reforms to stave off a deeper crisis in the union.
The budget cuts could still be challenged in the European Parliament and could be rendered meaningless amid growing uncertainty over European Union's international engagement with terrorism in West Africa, growing military aid to the Syrian opposition and the cost of continuing confrontation with Iran over its nuclear program.
"From my point of view this agreement is good and it is important because it gives us the ability to act in Europe in the coming years," Merkel said.
The BBC said the deal demonstrated "national politics still dominates. The European interest took second place."
The four biggest groups in European Parliament said they "cannot accept it as it stands because it is not in the interests of Europe's citizens," the BBC reported.
Countries that pay more into the European Union than they get back want "better spending" or a greater focus on innovative and growth-stimulating measures, Germany's Der Spiegel magazine said on its website.
Germany now agrees with Britain that the European Union's administrative costs of $83 billion are too high and should be cut.
Some of the bid spending, such as farm subsidies, is politically charged and unlikely to be touched. Money doled out to new EU members, ostensibly to help them stand next to richer members from northern and western Europe, was not touched either. About 36 percent of the budgeted taxpayer's money will go into the so-called cohesion funds.
What no one can predict is the amount the European Union will need for emergency bailouts of economically distressed members dogged by slow growth, unemployment and growing social discontent.