The European Central Bank said euro zone countries with excessive fiscal deficits -- such as Germany, France and Italy -- need to cut public spending.
Such a move would boost economic growth and help keep inflation under control, it said.
While some euro zone members have succeeded in cutting spending in recent years, the five countries that have posted excessive deficits have made little progress in this direction, the ECB said in its April monthly bulletin.
"More progress is needed in a number of countries, notably in those member states which have been in excessive deficit over recent years," it said.
"Spending reductions would alleviate fiscal imbalances while also allowing for lower taxes. Such measures would support macroeconomic stability, promote growth and create a better environment for price stability," it said.
Germany, France, Italy, Portugal and Greece have all posted deficits above the 3 pct of GDP limit in recent years, although France recently announced that it had managed to trim its deficit to 2.9 pct in 2005.
The ECB said euro zone public spending rose from 30.4 pct of GDP in 1960 to 49.0 pct in 1998, and while it has declined slightly in recent years to reach 47.7 pct in 2004, it remains high by international standards.
US public spending was 34.3 pct in 2004, while Japan had a figure of 38.6 pct.
Within the euro zone, the public spending ratio ranges from 34.2 pct in Ireland to 54.0 pct in France.
The ECB said Ireland, Belgium, the Netherlands and Luxembourg began reforming public spending in the early 1980s, while Spain, Austria and Finland also embarked on reforms in the mid-1990s.
"By contrast, the other five euro area countries made little or no progress on primary expenditure reform and currently report public expenditure ratios near or at their all-time high. These also happen to be the five countries that are subject to an excessive deficit procedure," it said.
Countries that have cut public spending have seen a significant rebound in employment and potential growth, it said.