The Republic of Ireland will be allowed spend its way out of the recession and breach EU rules governing the amount of money member states can borrow.

Next Wednesday, the European Commission is to unveil its plan to revive the flagging economy.

It is expected to see the Stability and Growth Pact set aside for up to two years so member states can borrow money to help make up the shortfall in falling tax revenues.

The Stability and Growth Pact requires member states to hold their national budget deficits below 3pc of gross domestic product (GDP).

But Republic's projected Budget deficit for 2008 is 5.5pc, rising to 6.5pc for next year.

While other EU countries have breached the rule in the past, none have been punished, although legally they can be obliged to pay fines.

Yesterday, the secretary general of the Commission, Catherine Day, said there would be "concrete and ambitious" proposals announced on Wednesday, which would comprise two parts -- including a temporary relaxation of the rules.

The first will urge member states to inject more money into the economy, and the second will see an acceleration of payments under the structural funds. Money will be brought forward that "would have come later in the cycle", she said, and there will be a "heavy emphasis" on research into 'green' technologies.

"We will allow member states to go into deficit for a limited period, about two years. We will advise member states on what action they can take," she said. "We can have a package to reflect tougher times. We are prepared to be flexible as long as the targets aren't changed."

Earlier this week, Commission President Jose Manuel Barroso said that the fiscal stimulus package would act inside the Stability and Growth Pact, but use "all the flexibility".

Last week, it was reported that the Commission was planning a €130bn economic stimulus programme, representing 1pc of gross domestic product for each member state.

Senior officials said it was "premature" to put a figure on the package, and would not confirm nor deny the report.

"You need to give confidence back to the financial system. One of the very clear messages will be what sort of flexibility is in the Stability and Growth Pact. Any measures must be timely, targetted and temporary. The financial crisis is not a free pass for those who would have breached the rules anyway. We may see more of a menu where people can pick and choose," one source said.

The fast-tracking of structural funds could give Ireland's construction sector a timely boost, as we are in line to receive €900m under structural funds up to 2013, some of which is earmarked for infrastructure projects.

The Border, Midland and Western regions will receive €229m, with another €146m for the Southern and Eastern regions.