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

Question

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In tackling this question, I will assess each proposed limitation of the Stability and Growth Pact (SGP) as highlighted by the Eurozone crisis.
Option a: 'It lacked any mechanism for monitoring national fiscal policies' This is not accurate as the SGP did set up procedures and reporting requirements to monitor fiscal positions, including the need to publish budgets and medium-term fiscal plans. The critique from the crisis era emphasized not the absence of monitoring per se, but the effectiveness and binding nature of those rules.
Option b: 'Its structural balance rules forced tightening during recessions' This captures a central criticism: during downturns, rules based on structural deficits often implied restricting deficits even when automatic stabilisers were needed, leading to pro-cyclical tightening. This created a tension where fiscal policy should loosen to support demand in recessions, but the rules incentivised restraint instead.
Option c: 'Its strict enforcement eliminated all political discretion' The SGP did impose corrective actions and penalties, but it did not eliminate political discretion entirely. Member states could negotiate, request exemptions, and the interpretation of rules allowed some room for policy choice within the framework, so this overstates the rigidity of enforcement.
Option d: 'It automatically prevented pro-cyclicality through built-in stabilisers' This statement is contrary to the crisis critique. The pact was criticized precisely for lacking automatic stabilisers or for reinforcing pro-cyclical fiscal policy in downturns, not for preventing pro-cyclicality. Hence this option misdescribes the impact of the rules.
Thus, among the choices, option b best reflects the commonly cited core limitation highlighted by the Eurocrisis, namely the pro-cyclical bias created by structural balance provisions under recession conditions, which constrained countercyclical fiscal responses.

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

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