The fiscal compact entered into force on 1 January. Formally known as the Treaty on stability, coordination and governance in the Economic and Monetary Union', it forces eurozone members to introduce a balanced budget rule at national level to prevent deficits from spiralling out of control as they did in the run-up to and during the crisis. Berlin welcomed this development while certain economists warn that it could deepen the recession.

The fiscal compact was signed outside the EU's framework by 25 of the Union's 27 leaders - minus the UK and the Czech Republic - on 2 March 2012. It was drafted a few months earlier to offer Germany assurances that the hundreds of billions of euro in bailout funds it had committed to Greece, Ireland, Portugal and the euro rescue fund would not be squandered. The treaty only applies to contracting parties whose currency is the euro, while the others will be bound by its provisions once they adopt the euro, unless they declare their intention to be bound by certain provisions at an earlier date.

The ratification of the fiscal compact by twelve eurozone countries (Austria, Cyprus, Germany, Estonia, Spain, France, Greece, Italy, Ireland, Finland, Portugal and Slovenia) before 1 January paved the way for its entry into force. Four other member states (Lithuania, Latvia, Romania and Denmark) have followed suit.

A German government spokesman welcomed the entry into force of the treaty as "good news". The fiscal compact "is a key element in the overall positive balance sheet for the year [...] but it is important that other measures follow," added the spokesperson, referring to greater economic coordination at European level. This fits in with German Chancellor Angela Merkel's New Year warning that "the crisis is far from over".

Other voices have criticised the fiscal compact. "Spain and Greece are in an economic depression with no hope for a recovery. The eurozone's 'fiscal pact' is no solution, and the European Central Bank's bond purchase is a temporary palliative at best," economist Joseph Stiglitz told the German newspaper Handelsblatt on 2 January.

Back in December, economist Nouriel Roubini warned that the fiscal compact will deepen the eurozone recession, asaeven countries such Germany, the Netherlands, Belgium, Finland and Austria will be obliged to cut deficits. "With austerity in the US and in Japan, the risk is that this is going to send the global economy into another downturn," he was reported as...

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