The Minister for Finance, Mr McCreevy, has called for a more flexible interpretation of the Stability and Growth Pact that would allow euro-zone governments to borrow more for capital programmes.

"There is a case for allowing countries to have some capital borrowing, if that will be commercially useful in the future," he said.

Mr McCreevy, who was speaking in Brussels during a meeting of EU finance ministers, stressed that he was not calling for a change in the rules of the Stability and Growth Pact.

"There are going to be no changes in the Stability and Growth Pact. The rules of the Stability and Growth Pact are good.

"They are for sound economic management and sound public finances," he said.

The pact obliges all member-states in the euro zone to balance their budgets in the medium term and it forbids budget deficits to exceed 3 per cent of GDP.

Germany and France have made their commitment to a balanced budget by 2004 dependent on growth levels of 2.5 per cent and 3 per cent respectively.

And Portugal's budget deficit for last year is believed to have exceeded the 3 per cent limit.

Italy's finance minister, Mr Giulio Tremonti, insisted that, despite his government's promise to cut taxes and increase public spending, he was abiding by the euro-zone rules.

"We believe we are completely respecting the pact and, on this basis, that Italy will receive the EU's backing," he said.

Mr McCreevy said there had been no discussion of the Stability and Growth Pact at yesterday's meeting.

But remarks this week by the Economic Affairs Commissioner, Mr Pedro Solbes, have fuelled speculation that finance ministers are preparing to re-interpret the rules.

Mr Solbes suggested that countries with low public debt levels should be given room to borrow in order that they might fund investments that would contribute to economic success in the future.

Euro-zone finance ministers issued a statement late on Thursday night, welcoming the euro's recent rise against the dollar and dismissing fears that a strong euro could damage economic growth.

"Ministers, the vice-president of the European Central Bank and the Commissioner welcomed the strengthening of the euro. They shared the view that a strong euro is in the interest of the euro area," they said.

Mr McCreevy played down the fall in Irish inflation announced yesterday and repeated that the average inflation rate for 2002 was likely to be 4.5 per cent. He said that increased competition and modest wage claims were the best way to bring inflation down.