LUXEMBOURG (AFP) - EU finance ministers have backed British, German and Hungarian plans to clean up public finances in line with EU rules, although Budapest was warned it could lose European funds if its budgetary discipline slackened.

Following a recommendation from the European Commission, the ministers approved at a monthly meeting in Luxembourg the three countries efforts to bring their deficits in line with an EU limit of 3.0 percent of gross domestic product.

Of the three countries, the budget situation is by far the most dire in Hungary, where the public deficit is expected to surge this year to 10.1 percent of GDP, much worse than any other EU member.

Although the ministers welcomed Hungarian plans to wrestle down its deficit, Finnish Finance Minister Eero Heinaeluoma, who chaired the meeting, acknowledged that "there is concern about the substantial deterioration of the public finances".

"The situation in Hungary requires urgent, determined and sustained action," he told journalists after the meeting.

Last month the European Commission recommended that the ministers back a multi-billion-euro austerity package which has been at the centre of calls for Prime Minister Ferenc Gyurcsany to resign and rioting in Budapest.

The programme aims to slash the public deficit in coming years to a target of 3.2 percent in 2009.

However, EU Economic and Monetary Affairs Commissioner Joaquin Almunia warned that if Budapest strayed from the target, then the possibility of losing EU funds earmarked for the bloc's poorest members like Hungary "will emerge".

The fiscal situations are much less critical in Britain and Germany which the ministers found to be on track for reducing their deficits in line with previous commitments and EU rules.

Berlin expects to end four years of flouting the three-percent deficit rule in 2006 by ending the year with a shortfall of 2.6 percent, which Almunia described as "very good news for the main economy of the European Union".

The Spanish commissioner was optimistic that the deficit might even be lower and told journalists earlier that "maybe from now to the end of this year this 2.6 percent can still be improved".

German Finance Minister Peer Steinbrueck said that there was a "high probability" that improving situation would "continue into 2007" although he acknowledged there were "risks" without naming them.

Although Germany was the main author behind the EU's tough budget rulebook, its deficit has breached the limit for every year since 2002 as a long economic downturn and the astronomic costs of unification pushed the country's finances deep into the red.

As for Britain, last month the commission said that London seems "just on track" to correct its excessive public sector deficit by the end of the 2006-07 fiscal year, although mainly thanks to strong revenues rather than new-found discipline.

Even though the ministers found that Britain did not need tougher actions to cut its deficit, Almunia insisted "close monitoring is required".

"They and us should be vigilant because the situation has not been completely clarified regarding breaching again the three percent limit," he said.

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