France says it has reached, but not breached, the budget deficit level allowed by EU rules, but the European Commission said the shortfall was enough to trigger disciplinary action.

French Finance, Mr Minister Francis Mer said yesterday that his staff had revised the 2002 deficit figure upwards from 2.8 per cent of GDP to 3 per cent, and that this was as high as the deficit could go without breaking the EU rules. "Three per cent can't lead the (European) Commission to start a procedure for excessive deficits," Mr Mer told a news conference.

But Mr Mer's interpretation of the EU pact was not shared by the Commission in Brussels, which has the job of seeing that the pact is respected.

Commission spokesman Mr Jonathan Todd said: "If a member state has a deficit of 3 per cent, the European Commission would set in motion the excessive deficit procedure." He stressed that he was not making a judgment on France for the moment but explaining how the rules worked.

The budget deficit cap is part of the EU's Stability and Growth Pact that was agreed in 1997 by European Union capitals and was designed to ensure there would be strict management of state finances when the euro was introduced. Germany and Portugal have already run up deficits far higher than the 3 per cent ceiling.

Mr Mer heads to talks with EU finance ministers in Brussels on Thursday and Friday and will meet the man who has been telling Paris for months that its budget policy is out of line with EU ambitions, European Monetary Affairs Commissioner Mr Pedro Solbes.

On Monday, Mr Mer said: "I confirm that I notified the deficit today, including to Mr Solbes - this three percent level - and I leave it to Mr Solbes to analyse the consequences." Another Commission spokesman in Brussels said EU statistics office Eurostat would now look at the French figures and issue an opinion on the Paris calculation on March 17th.