BRUSSELS (Reuters) - The European Parliament is prepared to block agreement on the European Union's hard-fought budget deal last month unless governments agree to increase spending on boosting growth, the president of the assembly said on Thursday.
Victory last week in imposing a cap on bankers' bonuses has fired the parliament's self-confidence, which it is now ready to use to change or block legislation, including the 2014-2020 budget, German Socialist Martin Schulz said.
"We are a very influential and powerful parliament," he said, adding that it wasn't about flexing muscles.
"Why would we refuse the (budget) deal? Not to show our power, but because we think with an overwhelming majority that the priorities are wrong."
Last month, after all-night talks, EU leaders struck a deal on a seven-year plan that included a first real-terms decrease in future spending, while protecting traditional areas such as farm subsidies and public infrastructure.
While the parliament is unlikely to challenge the overall spending ceiling of 960 billion euros agreed by EU leaders, Schulz said they could demand changes to how the money is spent, potentially throwing the entire deal into doubt.
"Where is innovation, where is education, where is research? They have abandoned the idea that a modernization of the European Union is needed," he said.
The parliament will push for a review of the budget framework after 2-3 years with the option of increasing spending if Europe's economic situation improves, and will seek greater flexibility to move funds to reflect changed priorities.
If member states and the parliament fail to reach a deal, the EU would be without a spending framework from the start of 2014, forcing it into a system of provisional annual budgets and throwing its long-term spending plans into disarray.
Despite the political and financial uncertainty that would create at an already shaky time, Schulz said a decision to reject the budget could mark a sea change in decision-making.
"We need to limit this self-empowerment of the European Council," he said, referring to the body that represents the EU's 27 member states and is seen as having the greatest power.
"At the national level, a core right of the parliament is the right to adopt or refuse the budget. This could be a turning point in the development of European democracy."
The parliament first gained co-legislative powers under the 1993 Maastricht Treaty and the Nice Treaty in 2003. But the real change came with the entry into force of the Lisbon Treaty in 2009, when the assembly was given a joint say over sensitive areas such as financial regulation and budgets.
Despite the steady rise in the parliament's power in recent years, Schulz bemoaned the fact that the European Commission - the bloc's executive - has sole right to propose new laws.
"I don't blame them, it's the result of the treaty," he said. "But what is missing in the European Union is one of the key elements of parliamentary democracy, which is the right of the European Parliament to initiate legislation."
Such a change would require a lengthy overhaul of the EU treaties, and there is no guarantee that governments would agree. Until then, Schulz said the parliament would use the powers it already has to impose its will on EU decisions.
"We are winning more self-confidence," he said. "We are not aggressive, but the parliament is becoming more self-confident and combative."
Additional reporting by Luke Baker and Robin Emmott; editing by Luke Baker