European Union finance ministers meet in Brussels today amid mounting concern about the euro's rise against the dollar and the gap in interest rates between Europe and the United States, writes Denis Staunton  in Brussels

The President of the European Central Bank (ECB), Mr Wim Duisenberg, last night attended a meeting of euro-zone finance ministers at which he was expected to explain the ECB's decision last week to leave interest rates unchanged at 2.5 per cent.

The euro pushed briefly through $1.16 yesterday before falling back, fuelling fears that the high exchange rate could damage the European economy by making exports less competitive.

A spokesman for the Economic and Monetary Affairs Commissioner, Mr Pedro Solbes, yesterday described the rise of the euro as a correction of its undervalued condition.

"What needs to be watched in this situation is the volatility and speed of this correction. Too much volatility is bad for economic actors," he said.

The ministers are expected to discuss the Stability and Growth Pact, which came under renewed pressure at the weekend when Germany's finance minister, Mr Hans Eichel, said he would be unable to achieve his goal of a balanced budget by 2006. Mr Eichel said that Germany would breach the pact's 3 per cent budget deficit limit this year, for the second year running but promised to stay within the limit in 2004.

Mr Solbes' spokesman said that the obligation to balance all euro-zone budgets by 2006 remained in force and expressed confidence that Mr Eichel would succeed in bringing Germany's budget deficit below 3 per cent in 2004. He praised Mr Eichel for taking action to reduce Germany's budget deficit by 0.75 per cent this year. The spokesman said that the next stage in the disciplinary process was to send detailed recommendations to Germany about how to put its budget in order.

"If there is non-compliance or inaction, there is always the possibility of fines," he said.

The spokesman said that it was not surprising that Germany's budget deficit was likely to breach the 3 per cent limit in 2003 in view of the unexpectedly low rate of economic growth in Germany.

"We have to monitor the 3 per cent deficit limit in nominal terms and the close-to-balance objective in cyclically adjusted terms. The real question is: will Germany be able to reach the close to balance objective in structural terms?" he said.

The German chancellor, Mr Gerhard Schroeder, yesterday rejected calls from the opposition and from within his own party for Mr Eichel to resign.

"The chancellor is completely satisfied with the work of finance minister Eichel and there is no cause for a discussion over resignation as is currently being carried out by the media and among the opposition," Mr Schroeder's spokesman said.

But Mr Oscar Lafontaine, Gerhard Schröder's first finance minister, who quit after clashing with the Chancellor, urged his successor to pack his bags.

"Hans Eichel has to give up his finance politics. They have failed," wrote Mr Lafontaine in his regular column in Bild, Germany's best-selling newspaper.