France said last night that its public deficit would surge well above EU limits in 2003 in breach of a European Union pact on budget discipline, setting the scene for a showdown in Brussels.

The news was made public in a government statement in Paris, and Finance Minister Mr Françis Mer broke the bad news in person to the Commissioner of European Monetary Affairs, Mr Pedro Solbes, in Brussels, ahead of a dinner meeting of euro-zone finance ministers.

The news is thought likely to to trigger an "excessive deficit procedure" by the European Commission against France, possibly leading to multimillion-euro fines.

France's deficit will hit the equivalent of 3.4 per cent of gross domestic product (GDP) this year.

Mr Mer made it clear in a radio interview that France did not want to be told by Mr Solbes or others that it should cut public spending to help plug the hole in its state finances, saying that such cuts could further depress a sluggish economy.

"In telling them that I am crossing the yellow line with 3.4 per cent, I am showing them that I have decided not to let myself be smothered during this particularly difficult year 2003," Mr Mer said.

Belgian Finance Minister Mr Didier Reynders said the European Union was likely to punish France for the breach.

Perhaps sensing that Mr Mer was about the feel the heat from EU partners, French President Mr Jacques Chirac spoke out in defence of his government's economic strategy, which includes tax cuts to try to revive sluggish economic growth.

What also raises the stakes in Brussels is that France showed no sign of giving in.

Both Germany and Portugal have accepted to make amends for busting the same deficit cap.