Euro-zone finance ministers have given some of the EU's biggest member-states more time to reduce their budget deficits, signalling a weakening of the Stability and Growth Pact.
But France has defied the majority by declaring that it will press ahead with plans to boost public spending and cut taxes next year and will not start reducing its deficit until 2004.
The finance ministers agreed in Luxembourg yesterday that Germany, France, Italy and Portugal - all of which have deficits close to the upper limit of 3 per cent - should reduce their deficits by 0.5 per cent each year from 2003.
The move acknowledges that all euro-zone countries will not meet the Stability and Growth Pact's deadline of 2004 to bring their budgets close to balance.
France's finance minister, Mr Francis Mer, said he accepted in principle the proposal to cut budget deficits but made clear that Paris would begin the process in its own time.
"For 2003, we decided there were other priorities in France, for example, increases in military spending. Other countries did not make this kind of decision but we are still in a Europe where, at this stage, budget policy and policy full stop is an issue under national control," he said.
Some smaller member-states reacted with fury to Mr Mer's remarks and Austria's finance minister, Mr Karl-Heinz Grasser, said the European Commission should reprimand Paris without delay.
"France has made it clear that it has departed from the Stability and Growth Pact. France's policy is not in accordance with the stability policy recognised by everyone else," he said.
Luxembourg's prime minister, Mr Jean-Claude Juncker, recalled that the Commission was quick to reprimand small countries that departed from agreed budget policy.
"When others have problems, the rules are changed," he said.
The Minister for Finance, Mr McCreevy, described the relaxation of the rules as "a pragmatic approach" that took account of economic reality within the euro zone.
He pointed out that Germany, France and Italy accounted between them for 75 per cent of the euro-zone economy.
And he suggested that imposing too severe a policy of austerity on such countries could depress the economy throughout Europe.
Mr McCreevy said that, despite the relaxation of EU rules, the Government would attempt to balance the Budget this year.
"The Budget will be framed against a background of a balanced or close to surplus situation," said Mr McCreevy. The same economic textbook does not apply to Ireland and Germany," he added.
Mr McCreevy said that, like most developed countries, Ireland would see tax revenues fall this year, with a consequent impact on public spending.
"The opening budgetary position for next year is very difficult, the projected tax take for next year will be even less than this year," he said.
Mr McCreevy made a strong call for a Yes vote in next week's referendum on the Nice Treaty. Describing the choice for voters as "a no-brainer" he warned that the outcome could affect future foreign investment in Ireland.
"The ramifications for Ireland would be felt for years to come," he said.
