Signed by all the 27 European Union member states, except Britain and the Czech Republic, the budget pact is what Germany demanded in return for financial solidarity with its debt-laden eurozone partners.
Euro area countries will have to follow so-called “golden rules” under which governments cannot borrow substantially more than they take in in tax revenues making balanced budgets mandatory.
For those that do not balance their budgets there will be automatic fines and the European Court of Justice will oversee the treaty.
The treaty will go into force either when 12 out of the 17 eurozone countries ratify it, or on January 1 next year. Half a dozen, including Germany, have already backed it.
The aim of the agreement is to slash spending and contain the debt crisis.
To set an example of fiscal responsibility, France has promised to find 30 billion euros of savings in next year’s budget.
However economists are fearful such big spending cuts will drag the French economy into recession.