BERLIN (Bloomberg) -- European governments are finally delivering on their central bank's call to cut budget deficits, finance ministers said.

“The sound public finances are adding their part to the right monetary-policy mix, which means governments are doing their job,” Luxembourg Prime and Finance Minister Jean-Claude Juncker, the chairman of a panel of euro-area finance ministers, said as he and counterparts from the European Union met in Berlin.

The overall budget deficit of the 13 nations that use the euro fell for a third year in 2006 to below 1.75 percent of gross domestic product and ministers pledged to bring their shortfalls back to balance within three years.

“All member states wish to do what they can to ensure that by 2010 at the latest their overall budget deficits will be down to zero,” German Finance Minister Peer Steinbrueck told reporters.

The vow pleased European Central Bank President Jean-Claude Trichet who has long demanded governments take advantage of the best economic expansion in six years to cut their deficits rather than ramp up borrowing as they did in 2000.

Whether reduced government borrowing would allow the ECB to keep interest rates lower than it may have otherwise “is up to the central bank to draw their conclusions” on, Juncker said. The ECB has raised its benchmark rate seven times since late 2005 to a five-year high of 3.75 percent. Trichet declined to be drawn on whether smaller budget gaps would translate into lower borrowing costs. “I was very impressed by the discussion,” he said. “It's very important this decision was taken.”

After dropping to 1 percent of GDP in 2000, the euro area's deficit rebounded to 3.1 percent in 2003 as Germany, France and Italy all ran up budget imbalances.

The ministers still running deficits agreed to cut them by 0.5 percent of GDP annually in coming years with the aim of bringing them closer to balance by 2010 at the latest. Italy, Portugal and Greece still have deficits north of the ceiling of 3 percent of GDP set by the European Commission.

The euro-area economy has maintained momentum after growing 2.7 percent last year, the best since 2000. Unemployment is at a record low and confidence among consumers and businesses has reached a six-year high.

The finance ministers were told in a report by the commission that risks to the outlook include renewed gains in oil prices, a downturn in the U.S. economy and increased risk averseness among investors.

“Risks have increased in the last month and we need to pay attention,” EU Commissioner Joaquin Almunia said.

Finance ministers discussed the value-added tax system, with Austria saying it would be willing to test changes to the way EU countries collect sales tax to convince other member states that a new method would cut down on fraud. Germany, which currently holds the EU's rotating presidency, and Austria are facing resistance to changes they are proposing by the Netherlands, among others.