MADRID -- European Union finance ministers hammered out an agreement early on Friday to bring national budgets close to balance by 2004, but only after heavy wrangling as France dug in its heels.

After more than six hours of tough talking, Spanish Economy Minister Rodrigo Rato said he and his 14 European Union counterparts had struck a deal.

But France was allowed to make its commitment conditional on an economic growth rider.

"The broad economic policy guidelines have been unanimously approved," Reuters quoted Rato as telling a news conference after the ministers closed a meeting at which France proved the stumbling block.

In a national statement, new French Finance Minister Francis Mer said that his country's debt pledge was subject to France achieving economic growth of at least three percent next year.

The French economy is expected to grow by just 1.5 percent this year.

"If we don't have this growth, we will all have to accept to push things back by, who knows, one year or two years," Mer told a separate news conference.

The 15-nation bloc had delayed adopting its annual broad economic policy guidelines until French Parliamentary elections were completed last Sunday to spare conservative President Jacques Chirac political embarrassment.

---- Carrot and Stick ---- The finance ministers sought to reconcile Chirac's election pledges of hefty income tax cuts and extra spending on defence and security with the EU's stability and growth pact, designed to impose fiscal discipline to bolster the euro single currency.

But there was pain as well as gain for the new French administration.

Rato said France had pledged to its EU partners that promised tax cuts would be matched by reductions in public spending and that it would press ahead with a "broad policy of structural reform".

Mer also stated that his government would always comply with the bloc's stability pact, which stipulates a maximum budget deficit of three percent of gross domestic product, Rato said.

"The French government guaranteed that in 2002 any tax reduction will be neutral in terms of budget deficit," he told reporters.

The ministers arrived in Madrid, in the middle of a general strike over Spanish unemployment law reforms, with a mission to settle the French issue and clear the air for a full summit of EU leaders beginning in Spain's Seville later on Friday.

All 15 EU nations agreed to balance their budgets by 2004 in a pact signed five years ago, but France says it may not be able to do so before 2007 to implement Chirac's election promises.

Participants in Madrid said German Finance Minister Hans Eichel had played tough poker with the French, refusing to allow Paris any more leeway than Berlin had been granted.

---- Key Issue ---- The European Commission failed earlier this year to persuade finance ministers to warn Germany that its deficit was too close to the EU limit of three percent of GDP but won a German pledge to balance its budget in 2004.

The stability pact was agreed in 1997, ahead of the launch of the euro currency, and designed to keep governments from running up high deficits which would force the European Central Bank to raise interest rates to stop economies overheating.

Financial markets seem unworried by the wrangling, with the euro continuing to strengthen against the dollar, hitting $0.96 on Thursday for the first time in two years.

The European Commission, the executive arm of the EU, issued a report on Wednesday saying France, Germany, Italy and Portugal would all have to make greater effort to reduce their deficits and achieve balance budgets by 2004.

French Budget Minister Alain Lambert said on Thursday that France was likely to post a far bigger deficit than previously admitted.

Lambert said the deficit was likely to reach around 2.5 percent of GDP this year. However, he said strong economic growth would help France reduce its budget deficit thereafter.