The European Commission is expected to warn Germany and Portugal today that their budget deficits are too high. But the Commission will draw back from criticising Germany's economic policies, blaming the high budget deficit on the economic downturn.

Commission officials said that, in the assessment of Ireland's economy, there would be no repeat of last year's budget reprimand. But they added that, due to the nature of the assessment, there could be some mild criticism of the Government's policies.

"The nature of this assessment is to concentrate on what is wrong, not what is right," an official said.

According to the EU treaty, the Commission must monitor all euro-zone economies to ensure budget deficits remain within the limit of 3 per cent of GDP imposed by the Stability and Growth Pact.

EU finance ministers must endorse the Commission's assessment before an official warning is issued.

The Commission is concerned that Germany's budget deficit, expected to reach 2.7 per cent of GDP this year, is dangerously close to the 3 per cent limit. But the Economic Affairs Commissioner, Mr Pedro Solbes, has expressed support for Germany's economic policies and shares Berlin's view that the deficit is due to the global economic downturn.

The Commission is expected to criticise Portugal, however, for excessive public spending and a revenue shortfall.

The legal basis for today's warnings to Germany and Portugal is different to that which lay behind last year's reprimand to Ireland. The Government was found to have breached Broad Economic Policy Guidelines by failing to take action in the budget to reduce the danger of overheating.

Today's warnings concern the Stability and Growth Pact and are among a range of measures that can lead to large fines for governments breaking the rules.

The Minister for Finance, Mr McCreevy, has warned that large and small states must be seen to be treated even-handedly by the Commission. But a majority of member-states opposes censuring Germany too harshly, not least because Mr Gerhard Schröder's centre-left coalition faces a general election later this year.

A warning today would be unprecedented, and embarrassing for Germany, which was one of the most passionate advocates of the Stability and Growth Pact.