The European Central Bank (ECB) has warned the European Commission against proposing any change to the wording of the Stability and Growth Pact when it presents its ideas for a reform of the pact today writes Denis Staunton in Frankfurt

The ECB president, Mr Jean-Claude Trichet, said that the pact could be made more effective in encouraging governments to improve their budgetary positions during times of high economic growth. He made clear, however, that the ECB opposed any change to the text that would offer greater leeway to governments that run excessive deficits.

"If there are proposals to change the regulation, to change the text, the wording of the pact, it would not be in line with our own recommendation, that is clear," he said.

Mr Trichet was speaking in Frankfurt after the ECB's governing council left interest rates unchanged at 2 per cent.

The Economic and Monetary Affairs Commissioner, Mr Joaquin Almunia, who attended yesterday's meeting, will present his reform proposals to the Commission today. He is expected to call for greater flexibility in applying the budget rules so that countries facing long periods of economic stagnation - as Germany did until recently - would be given more time to bring their budget deficits within the pact's limit of 3 per cent of GDP. The European Union executive will suggest putting more emphasis on a country's debt position and debt outlook and applying a country-specific approach to budget surveillance, according to a draft seen by Reuters.

Mr Trichet declined to comment in detail on the proposals before they are presented today but he stressed that the ECB's position on the pact had not changed.

The ECB president presented an upbeat analysis of the euro-zone's economic prospects, saying the latest economic figures confirmed the bank's view that the euro zone was experiencing a gradual recovery. He predicted that economic growth would be between 1.6 and 2.2 per cent in 2004 and between 1.8 per cent and 2.8 per cent in 2005.

If wage rises remained moderate and there was no dramatic rise in oil prices or in indirect taxes, he said inflation in the euro zone was likely to be below 2 per cent throughout 2005.

Mr Trichet indicated, however, that interest rates have reached their lowest point and that the next change, whenever it comes, will be an increase. He said that, although the outlook for non-inflationary growth was promising, the ECB remained wary. "We maintain our rates as they are and we are pretty vigilant because there are upside risks to price stability," he said.