How could Greece exit the Euro legally?
The Rt Hon John Redwood MP discusses the best way for Greece to leave the euro
There is no exit in the Consolidated Treaties for countries needing to leave the Euro. There is no provision for a country to organise its own departure, and no provision for a vote of the other members to expel a member state. As the existing members in the Euro wish to remain members, that would seem to be an end to the discussion.
However, the Consolidated Treaties do require Euro members to conform to the convergence criteria and obligations of membership. These include tough targets for debts and deficits which many states do not meet. Those states that are far away from meeting these requirements are the most vulnerable to political and legal pressures from within the Union.
In practice, when a member state is no longer able to borrow the money it needs to finance itself in the markets, it is forced into a political negotiation with the rest of the Euro area. Such a member state seeks loans from the Euro area and from the IMF. This triggers a thorough review of that member state’s economic policies, and results in both the rest of the Euro area and the IMF imposing conditions on the state in return for loans. It is at this point that the question of continued membership of the Euro should be placed on the agenda.
The Euro states, the IMF and the troubled state should explore in their private discussions and briefings whether exit from the Euro would assist the recovery programme, and help the remaining states within the zone. If the troubled state was persuaded, the rest of the Euro area should then facilitate its temporary exit from the Euro. If the other member states were decided that exit would be best, they could make that a condition for their loans, whatever the view of the troubled state.
Legally it would be best to implement a decision for a state to leave by transferring that member state to Article 139 status of an EU country with a derogation from joining the Euro. This would make the exit state technically a candidate state for membership, but would also require that state to demonstrate convergence of interest rates, inflation rates and exchange rate with the rest of the zone, and to show it can get its debt down to 60 percent of GDP and its annual deficit to less than three percent.
These requirements would reinforce the discipline of the EU/IMF loans, but would also mean there would be no early re-entry for a troubled state, given the huge divergence of their debt, deficit and interest rates from the requirements.
The advantage of doing it all this way is that it should avoid legal challenge. No amendment to the Treaties would be needed. The exit state would move to a status that works for non Euro members of the EU. The exit would result from the decision of a member state to seek loans and aid, once that state had decided it could no longer finance itself inside the Euro. That is the right time to ask whether it would be better for that country to leave the currency. It would enable the IMF to put in a normal IMF recovery programme, with troubled state domestic monetary and currency control to assist the process.
If at a later date the exit state wished to assert its wish to remain with its own currency in future, consideration could be given to allowing that state a permanent opt out like the UK.
The Rt Hon John Redwood MP is the Member of UK Parliament for Wokingham and the Chairman of the Conservative Economic Affairs Committee. His articles are cross-posted on his blog by agreement
We are wholly dependent on the kindness of our readers for our continued work. We thank you in advance for any support you can offer.