Finance minister Brian Cowen shrugged off criticism of his handling of the economy by two of Europe's most senior politicians yesterday and predicted a budget surplus of 0.7 per cent of economic output or almost €1 billion.

He also expressed concern about revelations that the CIA had access to Irish people's bank records without the knowledge of the Government.

At a meeting of EU finance ministers yesterday, Mr Cowen said there wasn't a finance minister in Europe who wouldn't be happy to inherit Ireland's public finances.

"I don't think people at home realise what other EU states are having to do to bring their public finances into order," he said. "Germany has had zero growth in public spending in recent years, Portugal has cut pensions and Italy held a mini-budget after its election The Irish economy is being managed in a way to avoid these things."

His comments were made after EU commissioner Joaquin Almunia and Luxembourg prime minister Jean-Claude Junker warned Ireland not to stray from the revised terms of the EU Stability and Growth Pact. In comments made at the Eurogroup meeting late on Monday night, Mr Almunia said Ireland needed to ensure that it used the current buoyant economic conditions to save for the prospect of a downturn in the economy.

A spokeswoman for Mr Almunia said he issued the warning because the commission was concerned that Ireland would slip into a budget deficit position in 2007 unless the Government took corrective action.

"We don't just focus on those states that are currently experiencing difficulties but also states where problems may emerge in the future," she added.

The commission forecasts that Ireland will move from its current position of a budget surplus to a budget deficit of 0.4 per cent of GDP in 2007 unless action is taken. It wants Ireland to rein in public spending to save more in the event of a downturn.

When asked about the warnings, Mr Cowen answered that the Government planned to continue its current level of spending but also meet the EU criteria for budget discipline. "Quelle est le problem?" he joked, in reference to the EU criticism of his handling of the Irish economy.

"Of course we listen to everything that people such as the EU have to say but we have got to run the economy I expect this year we will achieve a budget surplus of 0.7 per cent," he said. "Our finances are sustainable."

The surplus predicted by Mr Cowen represents a significant turnaround on the forecast of a deficit of almost €1 billion made on Budget day and reflects greater-than-expected tax revenues.

Meanwhile, Mr Cowen expressed concern about media reports that have revealed that US intelligence agencies have access to financial transactions made by Irish and EU citizens over the Swift banking system.

Mr Cowen said yesterday that as a general principle he would like to know at the right and appropriate time about these types of measures rather than learn about them through the media.

Euro-zone finance ministers expressed resignation at the prospect of a further rise in interest rates next August. Dutch finance minister Gerrit Zalm welcomed the prospect of rate rises, saying they were consistent with the improvement of Europe's economy in recent months. "I am supportive of an ECB policy of gradual tightening," Mr Zalm said yesterday.

French finance minister Thierry Breton, who last May voiced opposition to a rate increase, also appeared to signal acceptance of the move. "What I see is that financial markets anticipate reasoned and reasonable ECB behaviour," he said.

"I don't think that you would be surprised if the bank will behave in the kind of way that the president [ Trichet] indicated during his last press conference," Luxembourg's prime minister Jean-Claude Juncker said yesterday.

In the wake of last week's European Central Bank (ECB) governing council meeting, Mr Trichet signalled that the ECB would take the unprecedented step of holding its next conference, due on August 3rd, in Frankfurt rather than by teleconference.

Markets have interpreted the step as signalling an imminent quarter-point rise.