Under the EU's Growth and Stability Pact member countries must keep their budget deficit's below 3% of national economic output.

France, the eurozone's second biggest economy, had a public deficit of 3.1% in 2002 and the Commission's provisional forecasts see it rising to 3.7% this year and 3.6% in 2004.

The Commission said France has not yet taken adequate measures to reduce its public deficit.

It said tax cuts and overruns in government spending were major contributors to the budget slippage in 2002.

Realistic?

The Stability Pact is designed to ensure national budgets do not endanger monetary union.

Any member that exceeds the 3% limit has two years in which to bring its deficit down, or it will face stiff fines from the Commission.

Germany and Portugal also have budget deficits that are too high and they are currently in the early phases of a process that could see them both fined.

Dominique Barbet, economist at BNP Paribas, said the Stability Pact must be modified.

"I think the fact that the two major countries are in the same situation, France and Germany, is a problem for the Commission," he said.

"The bottom line is that the Stability Pact design doesn't appear now as being quite satisfactory in terms of day to day functioning of the monetary union."