France was on Monday accused of undermining the euro and threatening a rift between smaller and larger EU countries, over its threat to renege on a deal to bring its budget deficit close to balance by 2004.

Commission officials reacted angrily to President Jacques Chirac's threat, claiming the "misguided" tax-cutting programme could damage the credibility of the pact underpinning the euro.

Meanwhile some smaller EU countries, which have come under fierce political pressure to slash their own deficits, have also reacted strongly.

"It really is a matter of credibility," said Jean-Claude Juncker, the Luxembourg prime minister. He said France should honour the commitment made by Mr Chirac at the EU Barcelona summit in March, that France would have its budget close to balance by 2004.

"It is not credible and responsible to decide in March that the deadline is 2004 and to reopen totally this decision two or three months later," Mr Juncker said. "By starting to say that the deadline has to be moved from 2004 to 2007, we are giving to the outside world the impression that our decisions are no longer decisions."

European Commission officials said many small countries had made big sacrifices to balance their budgets and would disapprove of the French move.

"Just look at what Portugal is doing now, and also countries like Austria and Finland," said one official. "They have done the hard work, and won't want anyone else to escape."

Officials think the dispute could come to a head this autumn, if France joins other big countries - notably Germany and Italy - to press for a more flexible interpretation of the EU's stability pact.

Both Germany and Italy are struggling to bring their deficits towards zero, and the German fiscal situation could be exacerbated by pre- election tax and spending proposals from both the main parties.

The Commission will today repeat its call for France, Germany and Italy to honour the promises to curb their deficits, which it claims is "essential to maintain the credibility" of the stability pact.

A British Treasury spokesman refused to comment on individual countries, but said Britain supported what he called a "prudent" interpretation of the stability pact. Earlier in the year, Britain came to the defence of Germany and Portugal when it argued that the Commission would be wrong to censure them over their budget deficits. Countries, it said, should not be forced to tighten fiscal policy to offset the effects of an economic slowdown.

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