Euro-zone finance ministers meet in Brussels tomorrow in a final effort to agree reform of the Stability and Growth Pact in advance of next week's EU summit.

Tomorrow's special meeting was called after finance ministers failed to agree last week on how to make the budget rules more flexible and to ensure that they do not excessively stifle economic growth.

All member states agree that the 3 per cent limit on budget deficits and the 60 per cent limit on public debt should remain in place.

There are major divisions, however, over how to deal with countries that breach the budget deficit limit.

Germany, France and Italy have led calls for large categories of public expenditure to be admitted as justification for exceeding the budget deficit limit.

Another group, led by Austria and the Netherlands, wants to allow brief and exceptional breaches of the deficit limit, but rejects the idea of a list of spending categories that could allow governments to escape punishment for breaching the budget rules.

Germany wants the cost of its national unification and its transfers to the EU budget to be taken into account in assessing its budget performance. France wants defence spending to be classified as a "relevant factor" contributing to an excessive deficit and Italy wants to be allowed to breach the budget rules on account of spending on public works.

During a visit to Vienna yesterday, Germany's chancellor, Gerhard Schröder, said he wanted the pact to have a greater emphasis on economic growth.

"Stability is important but growth is at least as important... We want to achieve an interpretation of the pact that serves both these goals," he said.

The latest compromise proposal from Luxembourg's EU presidency abandons the idea of a list of spending categories that would justify a breach of the deficit limit.

Instead, countries would justify breaches of the deficit limit on their own terms and it would be for EU finance ministers to decide how to proceed against them.

Such a compromise is unacceptable to Berlin, which wants a guarantee that the cost of unification and EU transfers will be regarded as "relevant factors" in assessing its deficit.

Italy's prime minister, Silvio Berlusconi, yesterday issued a sharp rebuke to Brussels when the EU's statistical office, Eurostat, cast doubt on Italy's budget figures.

"We're pretty tired of all this bureaucracy. We are really determined to do battle over this because Europe's job should not be to create difficulties for member states, but precisely the opposite," he said.

Italy says that its budget deficit in 2004 was 3 per cent of GDP but Eurostat yesterday declined to validate the figures.

"This is mainly due to the recording of payments to government by financial institutions which act as tax collectors on behalf of the government, the sectoral classification of government-owned entities, the treatment of a securitisation operation, the recording of transactions with the EU budget, inconsistencies between data on cash and accrual bases and statistical discrepancies in government accounts," Eurostat said.

Eurostat also declined to validate figures from Greece, which posted a budget deficit of 6.1 per cent in 2004.

The statistical office said that the figures may have to be adjusted upwards, partly because of government spending on the Olympic Games.