The European Commission will today launch a bid to restore the credibility of the stability and growth pact; the rules that are supposed to exert discipline on public finances in the euro zone.

The European Commissioner for economic and monetary affairs, Mr Pedro Solbes, wants to give greater flexibility to governments which run disciplined budgets and have low debt levels, but he also wants greater power to take action against governments which fail to tackle unhealthy budget deficits and bloated national debts.

Mr Solbes admits in the document that there have been problems in implementing the pact, which his political master, Mr Romano Prodi, president of the European Commission, last month described as "stupid".

National governments signed up to the pact in 1997, in the run up to creating the euro, but Mr Solbes accuses them of failing to maintain political ownership of the rules.

"There has been an unwillingness to acknowledge the implication of European Monetary Union on the conduct of fiscal policy at national level," says the document which Mr Solbes wants his fellow commissioners to approve today. It would then go on for consideration by finance ministers and later heads of state at an EU summit.

"Member-states have not played their role in exerting peer pressure on countries that miss budgetary targets by a wide margin, via the enforcement mechanisms of the stability and growth pact," it says. Mr Solbes's bid to overhaul the pact comes against a background of mounting pressure on France to revise its budget for 2003.

The commission has recommended that EU finance ministers should issue an early warning against France for running a deficit projected to be 2.9 per cent of GDP, perilously close to the ceiling laid down in the pact of 3 per cent. The commission has already triggered procedures under the pact against Portugal and Germany for running an excessive deficit.

Mr Solbes argues the reforms he is proposing will not change the core requirements of the pact, that states should avoid excessive budget deficits and should achieve and sustain budgets that are close to balance or in surplus.

But he is proposing that the ruling that budget deficits not exceed 3 per cent of GDP ceiling should become a more subtle instrument. Budgetary assessments should, he proposes, be adjusted to take account of the fluctuations in the economic cycle, meaning more latitude would be given at times when economic growth was below average.

Solbes wants national governments to endorse the proposal he made last month, that countries currently running a budget deficit would have to make an improvement of at least 0.5 per cent of GDP each year, after cyclical adjustments. That would ratchet up the pressure on Portugal, Germany, Italy and Greece.

Countries such as Ireland that have reduced their debt to low levels and brought their budgets into balance or surplus might, Mr Solbes suggests, be allowed greater freedom from the deficit rules in order to make public investments, for instance, to create jobs or improve infrastructure.

But conversely he wants stricter sanctions against countries that have not reduced their debt. Belgium, Greece and Italy all still have debt that is more than 100 per cent of GDP. Mr Solbes wants the same sanctions that currently apply against running an excessive budget deficit to apply also to countries that fail to reduce debt.

He also wants national governments to agree to possible sanctions against a finance minister who indulges in "inappropriate loosening of the budget" during good times, at the risk of amplifying the fluctuations of the economic cycle.

The 13-page document betrays the European Commission's frustration with finance ministers who have been reluctant to punish each other. Mr Solbes is still sore that early this year finance ministers refused to back proposals from the commission that Portugal and Germany should be issued with early warnings that they risked exceeding the 3 per cent of GDP ceiling for budget deficits.

Mr Solbes wants a new resolution "to reinforce the co-ordination of budgetary policies" to be endorsed at a meeting of European heads of state and government next March. This would, he says, be "a firm political commitment of all parties concerned to adhere to their budgetary commitments at EU level and to exercise their role in the process of peer-review and enforcement".