On January 1st 2013 the Treaty on Stability, Coordination and Governance in Economic and Monetary Union, commonly known as the "fiscal compact", formally entered into force. This agreement aimed at strengthening the fiscal discipline in the euro area by introducing the balance budget rule and the automatic correction mechanism.

Further to agreement reached on the Treaty on Stability, Coordination and Governance in Economic and Monetary Union by the beginning of year 2012, 25 Member States signed the text in March of that year. This instrument, which is binding under international law, was born with the aim to strengthen fiscal sustainability in the euro area and to reduce tensions on sovereign debt. The introduction of a "balance budget rule" would also help to improve supervision in the euro area.

Further to the signature it was necessary that 12 Member States ratify the text so that the agreement could enter into force, one condition that has been fulfilled once Finland has ratified the Treaty and deposited the instrument of ratification on December 21st 2012. Originally signed by 25 states, the Treaty on Stability, Coordination and Governance is open for signature by all other European Union countries which did not sign it at the outset. Moreover, the ultimate objective is to incorporate as soon as possible the provisions of this agreement to the existing EU treaties, for which necessary actions are expected to be taken over the next five years.

Signatories of the Treaty have one year after its entry into force to incorporate the requirement for budgetary discipline and the automatic correction mechanism into national law. This requirement should therefore be fulfilled by January 1st 2014. This transposition should take place preferably at constitutional level. Should any signatory fail to comply with this requirement, the Court of Justice of the European Union could act and its decision would be binding. A penalty of 0.1% of GDP could be imposed, whose amount would be paid to the European Stability Mechanism if the country's currency is the euro or, otherwise, to the general budget of the Union.