Brussels, Belgium ? European Union leaders agreed early today on a seven-year spending plan for the 25-nation bloc – a hard-won deal seen as key to shaping the future of an enlarged EU and to restoring faith in its unity.

The blueprint offered by British Prime Minister Tony Blair slashes Britain’s EU budget rebate by $12.6 billion over seven years – money now slated to boost economic development in the EU’s 10 new member states across eastern and central Europe.

In return, the EU countries – crucially France – agreed to a spending review in 2008-09 that could lead to new cuts in the EU’s agricultural subsidies.

European Commission President Jose Manuel Barroso said the deal was important to “keep Europe on the move, that we avoid paralysis and that we keep open to the idea of a modern enlarged Europe.”

Failure to reach a deal would have paralyzed the EU’s finances and hobbled economic development in the poorest regions. It would also have undermined the credibility of the bloc, already jolted this year by French and Dutch voters rejecting the EU’s first ever constitution in national referendums.

The tense negotiations had split the 25-nation bloc into two camps – one led by Blair, whose country holds the rotating EU presidency, and the other led by his old sparring partner French President Jacques Chirac – both of whom are trying to shape the future direction of the European Union.

Most member states had rejected Britain’s earlier package as too austere. Many of the bloc’s new member states, including Poland, Hungary, Estonia, Latvia and Lithuania, demanded more money to build new roads and other infrastructure.

Britain, bowing to French and German pressure, agreed to raise spending by some $15.8 billion – mostly by cutting its rebate – to placate the Poles, who had threatened to veto a deal if they did not receive more money. The blueprint offered by Blair caps spending at $1.04 trillion between 2007-2013.