The French parliament has endorsed a budget for 2003 based on an ambitious 2.5 per cent growth forecast, raising the prospect of further clashes with the European Commission for breaching the euro zone's stability and growth pact.

The Commission is expected to issue a formal early warning to France over its budget plans early next year, implying it believes the forecast is unrealistic.

Mindful of a new clash with Brussels over a budget deficit likely to touch the ceiling fixed at the equivalent of 3 per cent of gross domestic product, finance ministry officials in Paris hinted the government was ready to freeze certain items of spending.

Spending controls could be introduced in the first months of the new year, private sector economists suggested. They said this was the only way the government could hold the budget deficit below the stability pact limit and come close to the 2003 budget target of 2.6 per cent.

At an early stage in the 2003 budget debate in October, Mr Francis Mer, finance minister, hinted the government might have to introduce an austerity plan.

Even Mr Jean-Pierre Raffarin, prime minister, has admitted the 2003 growth target is "ambitious". But yesterday Mr Jean-Francois Coppe, spokesman for the centre-right government, said: "We are already working on the 2004 budget, which will clearly show the government's determination to meet its European obligations while also working on its own set of priorities."

The 2003 budget was partially inherited from the previous Socialist-led government. But it has had to accommodate a spending overshoot in the current year, exacerbated by implementing promised tax cuts.

The economic slowdown has cut treasury receipts. Failure to make structural adjustments in spending and France's refusal to drop tax cuts have already produced rebukes from Brussels and other euro-zone members.

 - (Financial Times Service)