"What the (European) Commission is asking on the question of expenditure is unfeasible unless we cancel transfers to households or cut back our employment policy," he told the newspaper Le Monde in an interview.

"That would go against the grain of the policy the government wants."

France is predicted to have a deficit of 3.6 per cent of Gross Domestic Product (GDP) in 2004. It would be the third consecutive year that France will be in breach of the eurozone's Stability and Growth Pact, which limits the deficit to three per cent of GDP.

The French deficit in 2002 was 3.1 per cent and is estimated to reach four per cent this year. The Commission has asked France to cut is structural deficit by six billion euros (seven billion dollars) in 2004.

Lambert said that the existing 2004 budget already included all the economies it was possible to make "taking into account the economic context."

If growth was higher than expected "all the pleasant surprises in the matter of fiscal receipts will be devoted to cutting the deficit."

"I still believe in the usefulness of and need for the (Growth and Stability) Pact, but the rules it lays down (should be) applied with discrimination over the length of an economic cycle," he said.

By breaching the pact's rules France, like Germany, has opened itself to sanctions. But Lambert said he didn't think "the (European) Council of Ministers could take steps that would tip France, and tomorrow Germany,into recession."

France's social security deficit is due to reach 8.9 billion euros in 2003 and Lambert said the message for next year was clear: it could not increase in comparison with this year.

"We have to set as a medium-term target that spending reimbursed by health insurance does not grow faster than the nation's wealth."