The case of « Grexit »

The exit of a Eurozone member state: Squaring the circle for legal experts? – The case of « Grexit »

The idea of Greece leaving the Eurozone – Grexit – seems to evaporate at least in the short run, following the agreement reached on a third bailout for the country. Nonetheless, the fact that Grexit had been mentioned by some stakeholders during the negotiations as a conceivable solution, or even a preferable solution, indicates that the feasibility, and the legal feasibility notably, of an exit of a Eurozone member state is a relevant question. Furthermore, the Greek instance has brought to light how inflammable such an option is either for the concerned country or for the Economic and Monetary Union . Last but not least, the empirical observation of the negotiations that have taken place for the past couple month shows evidence of the primacy of political stakes on such a question, whereas legal aspects can be depicted as secondary matters. Thereby is the exit of Eurozone member states conceivable from a legal perspective?

A LAST MINUTE DEAL – AVOIDING THE GREXIT AFTER CHOPPY NEGOCIATIONS

On August the 20th, in the evening, Alexis Tsipras officially announced that he was about to resign as Greek Prime minister. Contrary to the announcement delivered by the Prime minister of his will to hold a referendum on July the 5th , the resignation of the Prime minister was awaited since it will allow the Mr Tsipras to hold early elections, most-probably after mid-September . If no political surprise happens, early elections would help Mr. Tsipras to strengthen his political legitimacy and help him to deal with a rampant division within Syriza, a political federation currently in office which is made up of a diversity of parties and to which Mr. Tsipras belongs.
The growing division within Syriza has been triggered as of the agreement was reached between Alexis Tsipras and its European partners during a ‘marathon’ European summit on July the 13th. With respect to the agreement sealed between Athens and its creditors from the “Brussels Group” , it stated that negotiations regarding a third bailout programme for Greece would start provided that Athens commits to implement reforms that are more substantial that the ones refused by the Greeks on the referendum of July the 5th. By signing the compromise, the Greek Prime minister dismissed the perspective of a Grexit in the short run, at the cost of great political sacrifices as the removal of the Greek Finance minister, Yanis Varoufakis, and the increasing contestation within Syriza as well as the speeches held by the Greek Minister in the days after attest from it. From that moment on, and after the adoption by the Vouli of the first bunch of reforms demanded by the creditors, the Eurogroup negotiations have led to the adoption of the new 86 billion euros bailout programme . The third bailout programme went through the national legislative processes of adoption, more or less smoothly like for instance in Germany , and eventually the first 26 billion euro chunk of the bailout was delivered to Greece. The first chunk allowed Athens to honour some of its dates of payment and to ensure the recapitalisation of the Greek banks.
Beyond the 13th July agreement put an end to months of negotiations during which stakeholders had a political, or even an ideological, tussle, leading to a series of European summits and Eurogroups. Moreover, this agreement laid aside the idea of a Grexit that was an option favoured by the European hawks, those who stuck to the hardest line. A Grexit seemed indeed hard to circumvent the day after the Greek “no” since the European leaders with at the forefront countries such as Germany or Finland as well as Eastern European countries such as Slovakia and the Baltic States were willing to respond firmly to the unexpected political move of the Greek Prime minister. Moreover, after the restoration of dialogue in the days that followed, the German Finance minister, Wolfgang Schäuble, put forwards the idea of a five year temporary Grexit, that would turn to a permanent one in reality .
Temporary or permanent, the Grexit did not occur. However, the question of its legal feasibility was prominent during the final rounds of negotiations. Every political decision remains influenced by the legal frameworks in which the decision is enshrined. Nevertheless, when it comes to the European project and more especially to the Economic and Monetary Union, the binding nature of the EU law seems to be a fluctuating concept. The concept of “soft law” appears in that case as an illustrative instance. With respect to Grexit, the proposal of a temporary exit of a Eurozone member state is a first telling example. Moreover, the bunch of different interpretations, which could be found in the press at the moment of the final negotiations, regarding the possibilities offered by the EU law to authorize a Grexit, attest that the legal feasibility of an exit of a Eurozone Member State remains a touchy puzzle.

POLITICAL WILL VS LEGAL LIMITS

On January 3 2015, Der Spiegel reported that the German government considered an eurozone exit by Greece to be «almost inevitable» if Alexis Tsipras, the leader of the far-left anti-austerity party Syriza, won the January 25th elections, abandoned budgetary discipline and would not repay the country’s debt. A threat that quickly led to an answer from the European Commission spokeswoman Annika Breidthardt, who wanted to clear up rumours while asserting that «euro membership is irrevocable». In doing so she tacitly referred to a rule enshrined both in Protocol 10 of the Maastricht Treaty (1992) and in article 140, paragraph 3, of the Lisbon Treaty (2009). Today’s version of the Treaty on European Union (TEU) indeed states that the rate at which the euro shall be substituted for the currency of the Member State is irrevocably fixed.

This adjective «irrevocable» could easily be interpreted as a two-faced: a member state cannot be kicked out of the single currency nor choose to leave the eurozone. Indeed, EU treaties have never made any provision for an euro exit. Far from being a mere coincidence, this legal loophole results from a political vision of the Economic and Monetary Union (EMU), initially considered a form of traditional marriage with no possibility for divorce. A French Senate note highlighted in 2010 that the single currency’s adoption was definitive in the Maastricht Treaty authors’ spirit and that no return to a national currency was thus conceivable. An hypothesis knowingly ruled out to ensure the EMU’s durability and stability.

There was a time when the European Commission had thought about creating an action for failure to fulfil an obligation in order to penalize countries which try to massage their public accounts, but the Guardian of the Treaties finally gave up on this idea in 2007. Such proceedings would have only led to financial sanctions anyway, according to Francesco Martucci, professor of public law at Panthéon-Assas University. No one could legally force a country to leave the eurozone, even in case of violation of financial commitments by a member state. As a result, the recurring argument of Greek’s attempt to mask the true extent of its deficit to circumvent the Maastricht’s rules is irrelevant.

Besides, Greece could immediately take the EU to court if a country tried to oust it from the eurozone. Yanis Varoufakis, the former Greek finance minister, reminded that well after Germany’s above-mentioned warning, when he threatened to seek a court injunction against the EU institutions to block his country’s expulsion from the euro. By a recent court order confirming the legality of the European Central Bank bond-buying program for Greece, the European Court of Justice already took part in the ongoing Greek saga. However, a decision on a country’s expulsion from the EMU would indubitably set a precedent.

To summarise, today no Grexit is theoretically possible. Nevertheless, some legal manœuvres were identified which could see them manage to wriggle out of the deadlock, through more or less crédible methods.

Firstly, leaving the eurozone is legally conceivable with a parrallel withdrawal from the European Union. Whilst the Lisbon Treaty did not foresee a euro exit, it does provide for it though the possibility to leave from the EU unde the article 50 «withdrawal clause». This clearly says that «any member state may decide to withdraw from the Union on the basis of a negotiated arrangement». An agreement must be reached between the member state and the EU, before being submitted to the European Parliament and the European Council. Such a drastic solution is unlikely to be favored.

Another roundabout way could be utilized by using the «right of withdrawal» of article 50 and then subsequently rejoin the EU without being part of the single currency system. Greece could hope to benefit from a derogatory status as did Denmark, Great Britain or Sweden did in the 1990s. It would however be dealt with as a new applicant, without any automatic right to enter again, or to benefit from any special advantages. This very risky hypothesis has not been seriously considered so far.

The last method could be to change the EU treaties through an amendment to introduce an excit clause from the eurozone, chich would enables Greece to leave but without quitting the EU. As it would involve decisive amendments made to the Treaties, the ordinary revision procedure which needs a ratification by all the member states would be required. As a consequence, Greece could use its right to veto. For Vivio Pertusot, head of the French institute of international relations in Brussels, this is as well «politic fiction». With elections jooming in many member states (including key ones as France and Germany) and more generally the rise of extreme right parties, any suggestion to change the treaties in such an unfavorable political context would open Pandora’s box.

Although the «no» vote in the bailout referendum did spread the idea that Greece was edging closer to finally leaving the eurozone, the Greek conundrum is unlikely to end with one of those scenarios in so much as a Greek exit would be a terrible signal. Exposing eurozone’s lack of credibility, the European project would be its first victim. It could also lead Greece into an economic collapse. Even if there are not many modern examples of a country leaving a currency union, there would be likely be a flight of capital and a weakening of the banking system with the withdrawal of the ECB support. According to some economists, that could quickly lead to a massive devaluation and a further deep recession.

Opinion polls continue to show most Greeks wanted to keep using the euro currency and would prefer a compromise with European partners. With the recent massive efforts agreed to by the Greek government, the country did not choose to return to the Drachma.

Matthias TOUILLON
Emeline BESSET