The main problem with the European stability pacts of 1999 and 2011 was that they forced countries to follow contractionary fiscal policies during a recession to keep the budget deficit to the required level.

Question

Quizplus · Accepted Answer

The European stability pacts of 1999 and 2011 indeed required countries to maintain a budget deficit below a certain limit, even during a recession. This meant that countries had to implement austerity measures or contractionary fiscal policies, such as cutting public spending and raising taxes, to meet the deficit target. However, these policies often worsened the recession by reducing demand and increasing unemployment, which ultimately made it harder for countries to repay their debt. Thus, the stability pacts were criticized for exacerbating the economic downturn and hindering the recovery.

The Main Problem with the European Stability Pacts of 1999