German Finance Minister Mr Hans Eichel said last night that the EU had no reason to issue a warning to Germany over its widening budget deficit. EU Economic and Monetary Affairs Commissioner, Mr Pedro Solbes, also moved to distance himself from reprimanding Germany, saying the Commission had no plans to send a warning letter.

Commenting on European press reports that a warning might be imminent, Mr Eichel said: "We have a good budget policy. The Commission thinks so also. We don't see any basis for such a letter," added Mr Eichel on his way into a working dinner with his euro group colleagues ahead of today's regular monthly meeting of EU finance ministers.

Last week, the Commission said Germany's budget deficit was forecast to reach 2.7 per cent of gross domestic product this year. Under the EU's Stability and Growth Pact, member-states must keep deficits below 3.0 per cent.

On his way into the dinner last night Mr Solbes said the Commission had no plans to send a warning letter to Germany. "We are sending no letter," he told reporters.

Under EU rules, finance ministers can deliver an "early warning" to any government with a deficit that threatens to exceed the 3 per cent limit.The Commission will consider Germany's budget next week and finance ministers will vote on the Commission's report next month.

Earlier yesterday, Mr Solbes's spokesman insisted that Germany's problems were different from those that led Ireland to be reprimanded last year. "It is a completely different issue to the Irish one. It is a different procedure and a different legal basis," he said. Mr Solbes has expressed support for Germany's economic policies, and accepts it would be a mistake to raise taxes sharply or cut public spending while economic growth is sluggish and unemployment rising.

Germany's Chancellor, Mr Gerhard Schröder, faces elections in September that could hinge on his success in cutting the dole queues. On taking office, Mr Schröder said his government should be judged by its success in fighting joblessness and he is unlikely to agree to any harsh medicine from Brussels that could dampen economic growth.

Portugal, France and Italy are also running budget deficits that are higher than the euro-zone average, but none is likely to be reprimanded. To avoid accusations of double standards, the Commission could choose to issue an early warning to Germany but couch it in supportive, non-confrontational terms.