Euro-zone finance ministers began discussions on the reform of the rules governing the euro last night with little sign of consensus among the 12 ministers, particularly on reform proposals put forward by the German Chancellor, Mr Gerhard Schröder, ahead of the meeting.

In a bullish article in yesterday's Financial Times, Mr Schröder appeared to call for a re-nationalisation of fiscal policy.

The article was remarkable for revealing the extent to which Mr Schröder wishes to reduce the Commission's ability to interfere in the running of member-states' economic policy. It also highlighted that the German premier has concretely set out his view on the euro-zone rules' reform.

Austrian finance minister Mr Karl-Heinz Grasser, a fierce defender of the pact, said Mr Schröder's proposals would lead to a "deficit and debt" pact as opposed to a stability and growth pact.

An EU official said "these proposals are very difficult".

The chancellor wrote: "The Stability Pact will work better if intervention by European institutions in the budget sovereignty of national parliaments is only permitted under very limited conditions."

He continued: "Only if their competences are respected will the member-states be willing to align their policies more consistently with the economic goals agreed by the EU".

The chancellor, who is trying to push through economic reforms at home, set out conditions which, if filled by a country, would mean it could breach the 3 per cent budget deficit limit set by the pact.

These include:

These conditions mean it would be considerably more difficult for the Commission to initiate the excessive deficit procedure against a country - the first step in a disciplinary process which can eventually lead to a fine.

Such a loosening of the pact would also go against the wishes of European Central Bank president Mr Jean-Claude Trichet who has said that a weakened stability pact could lead to the higher long-term interest rates.

Last night's meeting is the third time ministers have discussed reform of the euro rules, which most agree is inevitable after the Pact was left in tatters with Paris and Berlin breaking the rules for three years in a row.

Although full agreement is not expected until EU leaders gather for a meeting in March, finance ministers will try and control the process for as long as possible.