Tighter EU rules on budgets, deficits in force Jan 1

(BRUSSELS) - The EU's 'fiscal compact,' a hard-won step towards tighter economic coordination agreed as part of efforts to tame the debilitating debt crisis, comes into effect on Tuesday.

Finalised in March, 25 of the 27 EU member states accepted a 'balanced budget rule' in the compact to ensure that governments would no longer run the massive budget deficits which drove the debt crisis and nearly sank the euro.

The Fiscal Stability Treaty also laid down penalties for those who breached the rules to limit deficits and debt, providing for a degree of central EU oversight to keep miscreants in line.

Notably, the balanced budget provision has to be written into national law, and preferably, enshrined in the national constitution, to make it very hard to change or get around in future.

British Prime Minister David Cameron famously refused to sign up to what London saw as a further encroachment by Brussels on a key national right to set taxation and spending priorities. He was joined by a sceptical Czech Republic.

The treaty required ratification by 12 eurozone member states and with Finland doing so last week, it will now come into force on January 1, the EU said in a statement.

A German government spokesman said Friday that it was "good news" that the treaty would come into force as planned and recalled that it was Berlin which had first pushed for the balanced budget proposal.

The treaty "is a key element in the overall positive balance sheet for the year ... but it is important that other measures follow," he said, referring to other steps recently agreed to more closely integrate the eurozone.

Eurozone members Austria, Cyprus, Germany, Estonia, Spain, France, Greece, Italy, Ireland, Portugal and Slovenia ratified the accord before Finland.