Ireland and other small states are set to oppose the budget and spending plans of some of the biggest countries in the euro zone.

Next week's meeting of euro-zone finance ministers is set for a heated discussion on the budget plans of Germany, France, Italy and Portugal. At the same time, the finance ministers are expected to agree that this year's reprimand of Irish policy has lost relevance as the economy has slowed.

Ironically, Germany's Finance Minister Mr Hans Eichel was one of the ministers strongly in favour of reprimanding Ireland earlier this year for introducing an expansionary fiscal policy.

Most states appear to be adamant that Europe should not try to spend its way out of the current slowdown and that the terms of the Stability and Growth Pact should be rigidly adhered to. "We have been there before and it is always very hard to get public finances back onto an even keel," one European official said.

The stability and growth pact sets out specific limits in terms of debt and deficits, which euro-zone countries cannot breach.

The member-states are currently preparing their stability programmes for 2002 and these will be assessed between December and February. However, Monday night's dinner of euro-zone finance ministers is set to discuss the fiscal or tax-and-spending response to September 11th. This will be continued with the full meeting of the Ecofin on Tuesday.

States running surpluses, including Finland, Holland, Ireland and Spain, are set to insist that there must be no slippage of the growth pact's 3 per cent maximum deficit rule. Britain and Sweden are also keen on a strict interpretation, according to sources. The finance ministers are likely to accept that the 2001 target for exchequer finances of the euro-zone states will not be met.

For example, Ireland will not achieve the 4 per cent surplus originally targeted. However, there will be some insistence that cyclically adjusted deficits, that is when adjusted for the downturn in the economic cycle, remain the same. This means that most states will be allowed to run some spending increases and tax cuts to offset the downturn. But some states are insisting that Germany, France and Italy will have to compensate in part for tax revenue lost to the economic downturn.

This could mean tax hikes or spending cuts next year as all these countries are not "fully in conformity" with the Stability and Growth Pact Guidelines. Any breach could result in higher interest rates for all, officials say. However, these countries are likely to argue that a strict interpretation of the rules would kill off any chance of an economic recovery into 2003.

Ministers are also set for a row over the timetable for a return to balanced budgets. The Commission and smaller states argue that all countries should target a balanced budget in 2003, which would mean some measures would have to be taken in 2002. However, Germany is concerned that such a target would mean a huge budgetary adjustment in 2003 - and that it may be in recession in 2002.

However, they may have a way out. Under Stability Pact rules, they could spend their way over the 3 per cent limit if the economy was shrinking by 0.75 per cent. This get-out clause was fiercely fought by ex-finance minister Mr Theo Waigel against the French very late at night in Dublin Castle back in 1996. Some observers say Germany's finance minister Mr Hans Eichel may actually welcome a very tough message from Ecofin next week. If this happens, he can tell the German public he has to hold a very tight line in order to comply with the pact. That sort of message is likely to go down better with the German electorate than with, say, the Italian.

Italian prime minister Mr Silvio Berlusconi has described the Pact as a "real Moloch" (an idol to which children were sacrificed), and told Corriere della Sera: "If it were up to me, I would loosen the stability pact limits."

The finance ministers are likely to agree formally with the Commission's assessment of the Irish economic situation and point out that given the economic slowdown, the reprimand has lost some relevance. However, they are also likely to say that they will monitor the Irish plans for 2002 when they become available.