The European Union's executive commission said Monday it was keeping a close eye on the public deficits of France, Germany and Italy and could take action against them if their fiscal shortfalls were judged to big.

Italy was of particular concern with its deficit set to breach an EU limit of three percent of output for the third year in a row, meaning the country could face disciplinary action.

In its latest economic forecasts, the European Commission, which is reponsible for policing EU deficits, said it raised its estimate for Italy's deficit in 2005 to 3.6 percent from 3.0 percent previously and to 4.6 percent in 2006 from 3.6 percent previously.

EU economics and monetary affairs commissioner Joaquin Almunia said at a press conference that the commission would decide what action to propose for Italy as soon as the government had concluded ongoing discussions with EU statistics office Eurostat over its deficit figures.

"We will need to adopt measures in the case of Italy. When? As soon as possible," he said.

Almunia said the commission "is more pessimistic than the Italian government" over the impact of some of its 2005 budget measures.

"It's a very worrying situation," he said.

Germany and France kept Italy company in the fiscal doghouse although the two countries, which have repeatedly overshot the three-percent rule, were not expected to see a sharp deterioration in their finances.

In the commission's estimates, Germany saw its deficit forecast lowered to 3.3 percent for this year from 3.4 percent previously and to 2.8 percent from 2.9 percent previously for 2006.

The commission left its French deficit forecast for this year unchanged at 3.0 percent, but raised its prediction for 2006 to 3.4 percent from 3.3 percent.

Almunia said the commission keep close tabs on the German and French deficits, warning that "in the coming months it is possible that we will need to adopt some decisions" regarding the eurozone heavyweights.

The two countries successfully led a campaign to get the eurozone's fiscal rule book rewritten, leading to an agreement last month on the relaxation of the rules of the EU's Stability and Growth Pact.

The EU budget pact had been in tatters since November 2003 when France and Germany were let off the hook despite repeatedly breaching its public deficit limit of three percent of output.