The EU's stability and growth pact must be made more flexible, according to a committee of peers.

European Commission proposals to change the workings of the pact are to be discussed by member states at a meeting of finance ministers on March 7.

Ahead of the meeting, the Lords committee on European Union economic and financial affairs welcomed proposed reforms but cautioned against making the pact more rigid.

Inquiry chairman Lord Radice urged the government to ensure the pact is made more flexible.

"The Commission proposals can be used as a good basis to achieve this. They can be read as offering sound guidelines for member states to follow," he said.

The scale of concern amongst the committee was so great that it took the unusual step of drafting a letter to the government preceding it's report, demanding that sufficient importance be attached to the issue of flexibility.

Commission proposals for reform include a commitment to measure budget deficit on the basis of economic cycles and an acknowledgement that a three per cent ceiling on deficits must be flexible enough to take account of cyclical fluctuations and overall levels of debt.

"Gordon Brown should support the Commission's proposal to take account of the economic cycle and to allow low-debt countries more room to manoeuvre, as it would allow him to target the UK priority of public investment," said Lord Radice.

"The proposals would bring the EU rules more into line with the Treasury's own budgetary framework," he added.

The inquiry found that greater flexibility would strengthen the pact and avoid embarrassing incidents like those of last February when Ecofin members overruled the Commission and failed to warn Germany and Portugal when they broke the broke the tough borrowing rules.

The Commission hopes reforms to allow it the ability to hold back economic sanctions and instead issue early warnings to struggling member states will restore much needed credibility to the pact, which was famously described as "stupid" by Romano Prodi.