15 Feb Bleg: What Is EU Law on Greece (Possibly) Leaving the Eurozone?
One issue I don’t understand in the Greece-Eurozone crisis is the legal basis on which Greece can either be forced out of the Eurozone, or else can leave it voluntarily. I’d be grateful if someone knowledgeable could explain in the comments, and give the relevant treaty references, for how the process works. One reason I ask is that I thought I understood a year or so ago that leaving, voluntarily or involuntarily, was legally not quite as easy as many finance and economics folks seemed to think – entry was deliberately constructed on a one way door. But maybe I just didn’t understand how the treaty law works. So if someone could point to the legal process, even if it is just “by agreement of the parties,” I would be grateful.
The other question that arises here is why it’s a question. I suppose there are two possible scenarios. One is that Greece is ejected (whatever legally that means in the circumstances) but does not want to go. Perhaps its citizens realize that they don’t want to lose their euros, or for whatever reason. But France and Germany have had enough, and bring others with them in the Eurozone. If Greece objects, what can it do legally? Can it bring a case in, for example, the ECJ?
Alternatively, suppose that Greece takes the heavy-handed hint and agrees to exit, perhaps in exchange for some semi-golden parachute. But perhaps Portugal or some other weak EZ country sees in this a precedent for getting kicked out itself down the road – other countries, for whatever diverse reasons, want to ensure that the EZ remains a one-way zone, once in, forever in. Would one of them have the ability to bring a case in the ECJ or elsewhere, and on what grounds? Or is all this juridically water under the bridge, because legally the situation is merely whatever the countries agree to?
Easy. They can’t leave, and they can’t be forced to leave. Being a member of the Eurozone is mandatory for all EU countries that qualify, except the UK and Denmark, who have an opt-out. The Swedish deliberately make sure they don’t qualify by staying out of the exchange rate mechanism. Everybody else is either in the Eurozone or on their way there. Once you’re in, you stay in.
That said, given current circumstances it would probably not be that difficult to amend the Treaties in order to make a voluntary exit or even an ejection possible. After all, they’re already talking about all sorts of Treaty changes and new treaties as it is… However, that would require ratification by all 27 Member States before it would enter into force, so it would probably take some time.
Martin, thanks for this. Suppose that someone or some country thought that proper processes had not been followed – on whatever grounds – is the ECJ the right place to bring a dispute?
Phoebus Athanassiou wrote an excellent paper on the subject in 2009. It can be found here:
http://www.ecb.int/pub/pdf/scplps/ecblwp10.pdf .
It answers most of your questions with the usual warning: the legal regime governing expulsion and withdrawal is neither comprehensive nor coherent.
I believe Article 50 of the Treaty on European Union governs mechanisms for leaving the EU. As far as I know, there is no way short of treaty amendment that a country could be forced to leave the EU contrary to its wishes, and all members of the EU except those who negotiated opt-outs must be members of the Eurozone.
Note, however, that the European Court of Justice has a bad reputation on constitutional issues for deferring to what is politically expedient. One suspects that, if the most powerful countries in the Eurozone wanted to kick Greece out, the Court would find a way of letting them.
Alexander: Very useful paper, thanks. For readers, note that it is also available on SSRN if you prefer to find it there. It confirms what I thought I heard back a year or two ago about the difficulty from a legal standpoint. It further causes me to wonder how an orderly withdrawal can be organized, if that is where things are heading – on the one hand, all the economists and bankers seem to be talking about the need for speed but at the same time the legal documents seem to require treaty amendments.
What, in that case, about “quasi-currencies” that might be used in a transition to bridge the gap of time? Eg, debt issued by the Greek central bank that
whoops … debt issued by the central bank that can pass from hand to hand?
@Kenneth: Such quasi-currency may or may not be an infringement of the Treaties, but how would we ever know? Neither the European Commission nor another Member State would bring infringement proceedings, so that is out. That leaves a prejudicial question, which requires an actual “case or controversy” in national court. I suppose if the Greek government tried to make something other than the Euro legal tender, a case could arise out of someone’s refusal to accept anything other than Euros as payment, but obviously all of this would be slow and procedurally messy.
More generally, to answer your initial questions, those are the options:
– If the European Commission or another Member State thinks Greece should be using the Euro when it isn’t, they can bring infringement proceedings.
– Otherwise, the only route is to start from a case in Greek court, and ask a prejudicial question to end up before the CJEU.
Martin, thanks. The reason I asked about quasi-currencies was seeing this recent note by a UBS economist asking whether Greece is not already issuing its own “quasi-drachmas.” The note compares Greek “pharma bonds” with California’s IOUs, issued during a fiscal crunch a couple of years ago, and Argentine experiments. The Business Insider story to which the link goes remarks on the UBS report by adding that:
“in the case of Greece, the pharma-bonds seem unusually money-like, in that they can be deposited with a bank, which can then pledge them as collateral for real cash.”
@Kenneth: Putting on my economist’s hat for a moment: why would anyone ever accept such quasi-drachmas unless there was a statute making this mandatory? (i.e. making them legal tender.) If there is such a statute, it can be challenged in (EU) court, and if there isn’t, everybody would prefer the more secure Euros.
@Martin: I was thinking about this too – in Californnia IOUs, for example, in which the state forced employees, others, to accept its IOUs (and then, as I recall, balked when recipients tried to put them back to the state to pay their state taxes!). I was assuming that the next step would be for Greek state to use them as forced payment – civil servants, like California. Not sure it would work with hospital suppliers, as I imagine many of them are non-Greek and won’t accept local scrip. Argentina also forced acceptance by some parties within its economy. IOUs for Greek civil servants? It is pretty much the whole country, or at least a member of pretty much every household?
ps. Of course I’m ignoring someone bringing an action for illegal creation of new legal tender.
Kenneth: Another academic source to consider is, of course, “Mann on the legal aspects of money” now in its 6th edn, OUP, 2005. It has a chapter on the withdrawal from the EMU. You may also check F.A.Mann’s earlier work on money in public international law: “The legal aspect of money with special reference to comparative, private, and public international law” and “Money in public international law”. Historians also contributed to our understanding of the stability of currency unions. I suggest Niall Fergusson’s book “The Cash Nexus”. It was published in 2000, but the chapter on currency regimes is as relevant as ever. If you take a look at pp.338-345 you will understand why. You are correct that the Greek government cannot introduce a new national currency while still in the Eurozone. But I don’t see the benefit from introducing a quasi-currency. Here is a different scenario that hasn’t been debated yet, but can be introduced later: Greece exits the Eurozone, but remains in the EU. The government introduces a currency board with the drahma pegged to the euro. A currency board is a straightjacket on public spending. The social cost will be staggering especially for the most vulnerable parts… Read more »