Pedro Solbes appears to favour a legal challenge

Pedro Solbes, the commissioner for economic and monetary affairs, has hinted he is in favour of legal action to overturn the decision.

Taking the case to the Court of Justice could be "a useful option," he said.

Last year, the debate split the EU's executive arm and the row is set be rekindled at a meeting next week.

Stability?

Under the Growth and Stability Pact, members of the eurozone are not supposed to run up budget deficits of more than 3% of gross domestic product (GDP).

France and Germany, battered by rising unemployment and slowing economic growth, had bust out of those limits arguing that capping spending would hamper a recovery.

The European Commission, the EU's executive arm, warned them that failure to trim spending would result in censure and eventually large fines.

A compromise was found, with Germany agreeing to cut its budget by about 0.6% of GDP next year and 0.5% the year after. France is looking at 0.77% and 0.6% cuts over the same time period.

That, in theory, should get the deficits of both countries back below the mandated 3% of GDP.

Back door

But there is a get-out clause, under which the reductions will not be required if growth in the French and German economies is unexpectedly low.

And that is what is causing all the trouble.

Mr Solbes said the deal undermined the Stability and Growth Pact, while the European Central Bank issued a statement saying it deeply regretted the move.

Spain, Finland , the Netherlands and Belgium, which had fought hard to keep within the letter of the pact, objected to seeing their more powerful neighbours getting away with breaching it.

Germany and France argued that it was better to be realistic and promote growth, than to follow the letter of the law and slide into recession.

Meeting

The EC has two months to challenge the 25 November decision and Mr Solbes said it still has to make a decision as to whether it will take legal action.

The two sides will have an opportunity to hammer out their differences when they meet in Strasbourg next week.

According to Irish finance minister Charlie McCreevy it is heading only one way.

"The only way it is going to be decided upon is in the court", he said in Dublin on Wednesday.