Lisbon has won the ‘fiscal compact’ ratification race. On 13 April, Portugal’s parliament approved by an overwhelming majority the ‘Treaty on stability, coordination and governance in the Economic and Monetary Union’, signed by 25 EU leaders in early March. The main opposition Socialist party voted in favour. Eleven more eurozone countries will have to follow suit, by 1 January 2013, before this treaty seeking to introduce greater fiscal discipline at national level enters into force.

Portugal, which like Greece and Ireland currently benefits from a bailout programme, has an extra incentive to act quickly. Indeed, one of the fiscal compact provisions stipulates that, as of 1 March 2013, only those who ratify the treaty will have access to bailouts under the European Stability Mechanism (ESM).

The fiscal compact stipulates that contracting eurozone members will be required to introduce a balanced budget rule, which, through automatic sanctions, ensures the structural deficit, which strips out interest payments and one-off measures, is kept below 0.5% of GDP at market prices. If the ratio of government debt to GDP is significantly below 60%, as defined in the Stability and Growth Pact, signatories are allowed to reach a structural deficit of 1% of GDP at most.