The European Commission warned Germany, France, Italy and Portugal on Wednesday that it expected them to keep their promises and achieve budgets close to or in balance by 2004 at the latest.

Pedro Solbes (left) , commissioner for economic and monetary affairs, denied that the Commission might tacitly agree with the four governments to let the 2004 target date slip to 2005 or even later.

"Germany, France, Italy and Portugal must step up their efforts to meet the commitments they have made," Mr Solbes said. "2004 is the commitment that we're all sticking to now."

The Commission's unrelenting line stems from its view that the credibility of European monetary union requires governments to stick to agreed timetables for balanced budgets. But it may create difficulties for political leaders in the four countries concerned, especially for Jacques Chirac, the French president.

He seems virtually assured of re-election on May 5, and he has campaigned on a programme of tax cuts that would push back the date for a balanced budget to 2007.

In view of the tense political atmosphere after the electoral success of Jean-Marie Le Pen, his extreme-right and anti-euro challenger, Mr Chirac may consider it unwise to ditch his campaign promises in the name of a Brussels-inspired fiscal rigour.

If a leftist government were to emerge after France's parliamentary elections in June, it may be similarly wary of pursuing too harsh a fiscal policy in the light of the left's electoral defeat in last weekend's first-round presidential poll.

The German and Italian governments may also find it hard to fulfil the Commission's expectations without cutting public expenditure to a degree so far not envisaged in either Berlin or Rome.

However, Mr Solbes offered all governments some comfort by saying the Commission would probably treat a small deficit, of up to 0.5 per cent of gross domestic product, as falling within its definition of a budget "close to balance".

According to Commission forecasts published on Wednesday, France's budget deficit will rise to 1.9 per cent of GDP this year from 1.4 per cent in 2001 and will fall only marginally to 1.8 per cent in 2004.

Italy's deficit will be 1.3 per cent of GDP both this year and in 2003, only slightly down from 1.4 per cent in 2001. Portugal's deficit is projected to be 2.6 per cent this year and 2.5 per cent in 2003, compared with 2.7 per cent in 2001.

The German deficit will rise to 2.8 per cent of GDP this year from 2.7 per cent last year, but fall to 2.1 per cent in 2003.

Among other forecasts, the Commission says eurozone annual inflation will be 2.2 per cent this year, overshooting the European Central Bank's target ceiling of 2 per cent for the third year running. It predicts inflation in 2003 at 2 per cent.

Eurozone GDP growth is forecast at 1.4 per cent this year and 2.9 per cent in 2003. Unemployment will be 8.5 per cent of the workforce this year, falling to 8.1 per cent in 2003.

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