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BRUSSELS (AP) -- The European Parliament overwhelmingly rejected a proposal for the European Union's €960 billion ($1.3 trillion) budget Wednesday, in the latest example of the lawmakers new-found resolve to stand up to the union's national leaders.
"This is an important step for the European democracy," said European Parliament President Martin Schulz.
The seven-year plan -- brokered at a summit of the 27 heads of state and government last month after two days of nearly round-the-clock negotiations -- didn't address Parliament's main demands that more be spent on economic growth and that there be flexibility to move money within the budget. For that reason, Schulz said, it had to be rejected. The leaders' proposal involved spending cuts for the first time in the EU's history and would cement the bloc's budget through 2020.
"The vote has shown that the European Parliament must be taken seriously as a negotiating partner," Schulz said. "We are now ready to negotiate a fair multi-annual budget," he added.
Parliament and government representatives must now try to hammer out a compromise. Officials say they aim at finalizing it before the summer.
The European Parliament has started to flex its muscles under the leadership of the plain-spoken and assertive Schulz. And the EU's 27 governments have already started to see a shift in the balance of power -- as have the continent's top banking executives. Earlier this month, in arduous negotiations, Parliament forced the member governments to accept a cap on bankers' bonuses to the amount of their base salaries, or twice that if shareholders agree.
Lawmakers added the bonus caps to an important package of legislation strengthening the EU's banking system. Eager to pass the package without further delay, the governments grudgingly accepted the Parliament's proposal, despite strenuous opposition from Britain, home to the EU's biggest financial community.
Before the latest show of power, many observers had long criticized the European Parliament as just a multilingual talking shop, which at best rubber-stamped decisions prepared by national leaders or the European Commission.
However, since taking over the reins, Schulz has stressed that the Parliament will no longer automatically approve deals sealed in negotiations at EU summits.
"When I first came here as lawmaker in 1994 it was a nice forum, it was better when I came back in 2004, but now it's a real parliament," French Finance Minister Pierre Moscovici said last week at a parliamentary meeting in Brussels.
The budget showdown is the first time the Parliament has had the right to block the multi-annual budget. The lawmakers' powers were greatly expanded by the EU's 2009 Lisbon treaty.
The EU budget is separate from the national budgets of the member governments and is designed in part to balance out the economic development of the region by injecting funding into poorer countries. It includes significant funds for agricultural subsidies, but also for important infrastructure projects, research grants, diplomacy, and development aid around the world.
The national leaders' budget proposal falls about €40 billion short of the proposal first set forth by the European Commission, the EU's executive arm. The previous multi-annual budget totaled €976 billion, but national leaders argued that the bloc must accept cuts at a time when many EU nations, haunted by a three-year-old debt crisis, must slash spending to trim their deficits.
In its vote rejecting the leaders' budget, lawmakers issued a joint resolution urging "a modern, forward-looking and transparent" package with greater flexibility to shift funds over time and between projects. Crucially, they also seek to add a legally binding review clause that would allow lawmakers to reopen and readjust the budget after next year's European Parliament elections.
"We do not believe in a crisis budget for seven years," said Joseph Daul, who leads the majority center-right caucus.
"We must provide the European Union with a budget that is flexible enough to respond rapidly and efficiently to unforeseen events," added center-left lawmaker Goeran Faerm.
EU governments fear that such a review clause might be a backdoor to higher spending, and have rejected the demand.
In Wednesday's vote, 506 of 690 lawmakers rejected the current budget proposal and called for new negotiations.