A core limitation of the Stability and Growth Pact highlighted by the Eurocrisis was:

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Consider the question: a core limitation of the Stability and Growth Pact highlighted by the Eurocrisis was:

Option a: It lacked any mechanism for monitoring national fiscal policies. This is not accurate, because the pact did include surveillance and reporting mechanisms to track national budgets and compliance, even if the effectiveness of those mechanisms was debated. The statement overclaims the absence of monitoring and ignores existing reporting structures.

Option b: Its strict enforcement eliminated all political discretion. In reality, enforcement was constrained and political discretion persisted in practice. The pact did not abolish all political decision-making; countries could still face political choices in implementing adjustments, and the enforcement regime was criticized for being inconsistent and limited. Therefore this option mischaracterizes the actual enforcement dynamics.

Option c: Its structural balance rules forced tightening during recessions. This is the core critique: the rules tied to structural balance and annual deficits tended to constrain countercyclical fiscal policy, effectively forcing consolidation or tightening even when economies were in downturns, which undermined stabilization efforts during recessions. This captures a key policy tension highlighted by the Eurocrisis literature.

Option d: It automatically prevented pro-cyclicality through built-in stabilisers. This is not correct because the pact did not automatically eliminate pro-cyclicality; in fact, many observers argued that the rules could exacerbate pro-cyclical policy during downturns, and there were debates about stabilisers not being sufficient or automatically engaged. The emphasis here misstates the intended effect of the pact’s design.

Summing up the reasoning for each choice: option a overstates the absence of monitoring, option b overstates absolute political discretion removal, option c accurately describes the structural balance constraint during downturns, and option d wrongly claims automatic anti-procyclicality that was not guaranteed by the pact. Each option reflects common misunderstandings about how the pact operated and what scholars highlighted during the Eurocrisis period.

SESS0026_25-26 MCQ test - MOCK

A core limitation of the Stability and Growth Pact highlighted by the Eurocrisis was:

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