Under the deal the ALDE liberals will be handed an extra deputy president's post as well as the presidency of a parliamentary commission.
Guy Verhofstadt was seen as an outsider to succeed German socialist Manfred Schultz at the helm of the European legislature. Some commentators suggest that recent approaches between Beppe Grillo's Five Star Movement and the liberals may also have damaged Mr Verhofstadt’s chances.
Flemish liberal Hilde Vautmans denies that the decision by the two-times Belgian premier to quit the race is a defeat: "This is how you should do politics. You stand as a candidate and if you fail to gather a broad coalition behind you, you should change course and ensure that you achieve a coalition that reforms the EU in the interest of its peoples."