Chancellor Gerhard Schröder has dismissed as "absurd" reports that the German government is planning to abandon austerity measures in favour of a new deficit spending drive to stimulate the economy.

Mr Hans Eichel, the finance minister, denied the reports as well, saying planned increases in research and education spending would not be financed by additional debt, but by cuts to the €20 billion the government pays out annually in subsidies.

"We have no intention of leaving the consolidation course," said Mr Schröder yesterday, adding that the government's "Agenda 2010" reform plans would be implemented "point by point".

Mr Wolfgang Clement, the economics minister, stressed the government's commitment to the Stability Pact and said Berlin would come in under the deficit ceiling in 2005.

However, Mr Walter Schöler, a budget expert in the ruling Social Democrats (SPD) said the 3 per cent ceiling was "no dogma".

"In the end, for me it's not a question of whether we get a deficit of 2.9 per cent or 3.1 per cent in 2005, but that the general direction is right and that we get more growth," he said.

The German economy has experienced only negligible economic growth over the last three years, the unemployment rate stands at over 10 per cent and this year's budget is likely to hit €45 billion, according to Der Spiegel.

Speculation of a policy shift came after the foreign minister, Mr Joschka Fischer, said "just saving, cancelling and cutting-back doesn't bring us the necessary growth".

Yesterday Mr Eichel rapped the knuckles of his cabinet colleague, saying: "There are always misunderstandings when a foreign minister comments on economic matters."