Attempts to persuade member states to pay part of the EU's direct income supports to farmers were "totally unacceptable", the Minister for Finance, Mr McCreevy, told fellow EU Finance Ministers.

Ministers were giving their initial responses to a Commission paper produced last Wednesday which outlines a series of options for reforming the system of calculating member states' contributions, and one, CAP co-financing, for reducing the net receipts of states.

Mr McCreevy was joined by ministers from the poorer EU countries in warning that the CAP proposal would not contribute seriously to redressing the perceived injustice of the massive German net contribution to the budget. Moreover, Mr McCreevy said the proposal would also penalise the poorer countries.

The caretaker German Finance Minister, Mr Theo Waigel, reiterated his country's determination either to get a rebate or a reduction in its contributions and warned that "if Germany pays less, other will have to pay more".

There was little support for a German proposal to set a GNP ceiling on member states' contributions.

However, the Spanish Finance Minister, Mr Rodrigo Rato, speaking to journalists, launched a strong attack on the Commission over the report which, he said, was "unbalanced" and went beyond the Commission's mandate in proposing expenditure cuts when it was only supposed to deal with the income side of community financing.

He said it was strange that the Commission should produce proposals for re-nationalising a central EU policy area at a time when the Union was about to launch the single currency. The CAP proposal was also unrealistic in that member state parliaments could refuse to vote the additional compulsory expenditure, leading to major institutional conflict.

The Luxembourg Prime Minister and Finance Minister, Mr Jean Claude Juncker, said he strongly opposed the idea that the benefits of European Union membership could, or should be, measured in terms of budget contributions. "The cost of even one hour of peace in Europe is nowhere attributed in the budget," he told journalists, although admitting that, if the German problem had to be addressed, he preferred the CAP co-financing option.

He denied that the proposal involved "re-nationalisation" of CAP, arguing that all decisions involving a common market would still be taken collectively in Brussels. The special British rebate came under fire from several ministers, although Mr McCreevy acknowledged it would be politically difficult for London to propose its removal.

Talking to journalists about the Commission's economic forecasts, due to be published in 10 days, the Commissioner for Economic Affairs, Mr Yves Thibault de Silguy, said he believed the world's financial crisis would not have a significant effect in the EU's overall growth this year.

"1998 will be good," he said. "We forecast 2.8 per cent in April and I don't have any reason to think we will revise that down . . . 1999 growth is in the hands of Europeans themselves. If they have confidence, justified given the soundness of the fundamentals, growth will be good."