Germany, breaching the very Stability Pact rules it had demanded when the euro was established, dropped hints it was willing to move away from a firm rejection of Commission demands it cut its structural budget deficit more than it plans.

And Commission sources were quoted as saying it may water down demands for Germany to cut its underlying deficit by 0.8 per cent of gross domestic product, which Germany rejects because it says that would thwart economic recovery.

But German refusal to accept the medicine from Brussels drew criticism at home, with Bundesbank Vice-President Juergen Stark and EU Budget Commissioner Michaele Schreyer warning it could have a negative impact on the euro and Stability Pact.

"It the finance ministers don't follow the Commission's (recommendations), confidence in the currency union will be shattered," Stark, who as a junior finance minister once helped draft the Stability Pact, told Der Spiegel news magazine.

Schreyer, also a senior member of Germany's Greens party, issued a similarly dark warning in a Sunday newspaper interview.

"There are joint rules that have to be respected," she said.

Ex-Finance Minister Theo Waigel, who played a central role in creating the pact, said Germany was causing an EU crisis.

"This unbelievable fiscal and monetary policy course makes me absolutely livid," Waigel told the Nuerbuerger Nachrichten newspaper.

In Paris, Prime Minister Jean-Pierre Raffarin said France had done what was necessary regarding Stability Pact rules.

Raffarin said on Sunday it was now up to Finance Minister Francis Mer to convince other finance ministers on France's deficit strategy at talks in Brussels on Monday and Tuesday.

"On the deficit, we have done the necessary," he said. "We will reach the goal of less than three per cent in 2005."

The Sueddeutsche Zeitung daily quoted an EU Commission source saying Economic Affairs Commissioner Pedro Solbes's order that Germany cut its underlying deficit by what would amount to about five billion euros is "not the final word".

The Commission has proposed Germany get an extra year until 2005 to respect the EU's budget deficit limit in return for extra savings in 2004.

Germany has been fighting the move and has the support of a majority of other EU states, German government sources said.

Finance Minister Hans Eichel wrote a last-ditch appeal to his EU counterparts saying he did not want to undermine the Stability Pact by rejecting European Commission recommendations.

"I have never at any time questioned the Stability Pact", Eichel wrote, according to excerpts to be published in the Sueddeutsche Zeitung daily on Monday.

"It should be possible at our meetings coming up to find a joint position on the next step," he said, referring to the meetings of EU finance ministers on Monday and Tuesday.