Why was it important that the Stability and Growth Pact should allow eurozone member countries to run modest budget deficits?
A) With no scope for using an independent monetary policy, it is vital that eurozone members should be permitted to run budget deficits sufficient to allow for the operation of automatic fiscal stabilizers.
B) To facilitate free trade, it's important that eurozone members should not be unduly restricted in their use of fiscal policy.
C) While stability is provided by monetary union, growth requires that countries run budget deficits.
D) All of a, b and c are correct.

Question

Quizplus · Accepted Answer

With no access to independent monetary policy, eurozone member countries must rely on their fiscal policy to respond to economic shocks. Allowing modest budget deficits provides the flexibility necessary for countries to utilize automatic fiscal stabilizers without violating the Stability and Growth Pact.

Why Was It Important That the Stability and Growth Pact