The European Central Bank acknowledges that euro-zone countries cannot meet targets for reduction of their public deficits this year, the governor of the Bank of Portugal, Mr Vitor Constancio, was quoted by the Lusa news agency as saying yesterday.

Mr Constancio said that there were justifiable reasons, in the form of the slowing of economic activity, why the targets laid down under the stability and growth pact of restrictions on deficits were not being respected.

Member-states had different margins for manoeuvre depending on the conditions of public finances, Mr Constancio said during a meeting of the Bank of Portugal and the central banks of Portuguese-speaking African countries.

Portugal has fixed a target of reducing its public deficit to 1.1 per cent of output in 2001.

Meanwhile, the European People's Party (EPP), the largest political group in the 626-seat European Parliament, with its 232 seats, stressed the need for strict adherence to the euro-zone stability pact.

"The euro needs confidence and for that, it's necessary to very strictly adhere to the stability pact, to respect it," said EPP chairman Mr Hans Gert P÷ttering, speaking at a news conference in Rome after a seminar.

"We are against the increase in debt policies, as the socialists would have it," Mr P÷ttering added.

In Lisbon, Mr Constancio said that if economic conditions continued to worsen, Portugal might have to revise its objective of achieving a balanced budget in 2003 or 2004.

The stability and growth pact, which extends the principles of the Maastricht treaty, says that countries that have qualified for the euro should try to obtain a public surplus in times of growth.

The Maastricht treaty, which included criteria for joining the euro, said that public deficits in the qualifying period should not exceed 3 per cent of output.