The agreement by European Union finance ministers to allow Italy to relax its budget deficit target for this year was a move "in the wrong direction", Mr Jean-Claude Trichet, governor of the Bank of France, said yesterday.

As pressure mounted on the Italian government to consolidate its deficit reduction programme, Mr Trichet said the decision to ease Italy's deficit target from 2 per cent of gross domestic product to 2.4 per cent in 1999 had taken the European Central Bank by surprise.

Mr Trichet noted that on April 8th, the ECB's governing council decided to cut euro zone interest rates by half a percentage point to 2.5 per cent.

"When the governing council of the ECB decided on its last cut in interest rates, we underlined that we were doing so on the assumption that there would be a strict application of the growth and stability pact. Credit and growth are not unlimited," Mr Trichet said in Paris.

He joined other EU finance officials yesterday in trying to support the euro. But Standard & Poor's, the rating agency, warned that "any further deviation or delay in the projected decline in Italy's very high government debt burden or policy shifts resulting in slippage of long-term structural reforms could quickly result in downward rating pressure".

The agency maintained its ratings on Italian debt. "This highlights the difficulty for Italy maintaining fiscal discipline . . . in the face of general government interest payments, inefficiencies in public administration and an overgenerous pension system," it said.

Standard & Poor's also expressed concern that "political and institutional constraints" could delay reforms in the pension system, public administration, electoral system and labour markets.

A senior Italian government adviser indicated yesterday that reductions in spending aimed at cutting the deficit to 1 per cent of GDP by the end of 2001 could be difficult to achieve.

Mr Paolo Onofri, an adviser to the Italian treasury, told Milan daily Il Sole 24 Ore that he hoped there could be a reduction in the rate of growth in pensions spending, creating room for tax cuts.

Mr Eddie George, governor of the Bank of England, said yesterday that the disparities in the euro zone economy were unusual because of the effects of the east Asian financial crisis on the world economy.