The European Commission has praised Ireland's budgetary performance, predicting that the State will remain well within the rules of the Stability and Growth Pact for the next three years.

In its annual assessment of member-states' stability programmes, the Commission hailed as "remarkable" last year's budget surplus of 0.9 per cent, compared to a predicted deficit of 1.1 per cent. The report predicts annual economic growth above 5 per cent of GDP throughout the period to the end of 2007, and suggests that inflation will remain close to 2 per cent annually.

"In the light of this assessment, the budgetary stance in the programme seems sufficient to maintain the close to balance or in surplus requirement of the Pact throughout the programme period," it said.

"It also provides a sufficient safety margin against breaching the 3 per cent of GDP deficit threshold."

With public debt at 30 per cent of GDP, the second lowest in the EU, Ireland is described as well-placed with regard to the overall sustainability of its public finances.

The praise for Ireland stood in sharp contrast to its criticism of the euro-zone's three biggest economies - Germany, France and Italy.

The report said that Germany and France were likely to bring their budget deficits within the Stability and Growth Pact's 3 per cent limit in 2005 but that Germany's budget cuts were "not sufficient to achieve the medium-term objective of close to balance or in surplus".

The Commission reserved its harshest criticism for Italy, expressing concern over Italy's massive level of public debt, which was 106 per cent of GDP in 2004, compared to the Stability and Growth Pact's upper limit of 60 per cent.