There are many excellent reasons, both economic and political, for European leaders to want to keep Greece in the eurozone. But if Greece and its creditors fail to reach a deal on a new assistance package this weekend, it will be hard to avoid a Grexit. The question is, how can that be managed with the least risk to the stability of the eurozone and the EU itself? Can a country legally leave, or be forced out of, the euro? The only obvious way is by withdrawing from the EU altogether. Neither Greece nor its European partners want this to happen. So EU lawyers are working against the clock trying to find a creative way to accommodate a Grexit if it becomes inevitable. This insight identifies five possibilities. None of these options are desirable. Some are barely legal. But if all else fails, one of them may have to be chosen.
A Greek departure from the eurozone would be undesirable. It would maximise economic and geopolitical risks to both the EU and the currency union. But if an agreement is not found by the end of the emergency European Council meeting on Sunday July 12th, the EU could find itself in the unprecedented situation of having to manage a ‘Grexit’ (a Greek exit from the euro). In this case, whether Greece decides to leave voluntarily or the creditors choose to force the country out, EU lawyers will need to work out a solution to a seemingly unsolvable issue: nothing in the EU treaties allows for a country to leave the eurozone.
After the Greeks said ‘no’ in a referendum on July 5th to the latest EU proposal on economic reform and financial assistance, the leaders of the eurozone gave Greece a take-it-or-leave-it offer. Either Alexis Tsipras presented a convincing package for reforming the Greek economy and its institutions, in return for receiving further financial assistance from the European Stability Mechanism (ESM); or Greece defaulted which in all likelihood would mean an exit from the eurozone. On July 9th the Greek government submitted a new package of structural reforms to secure financial assistance. Alexis Tsipras, the Greek prime minister, must now reach a consensus with eurozone leaders, whom he will meet over the weekend. But is it really crunch time for Greece’s membership of the eurozone?
There is no explicit legal mechanism in the EU treaties for a eurozone member to leave the common currency or for the eurozone to expel one of its members. For the drafters of the treaties, the Economic and Monetary Union (EMU) was an ‘irreversible’ project; this wording was intended to strengthen the euro and reassure international markets that the new currency was worth investing in). The Lisbon treaty, however, introduced a legal basis for a member-state’s voluntary withdrawal from the EU. When the Greek crisis first erupted, EU legal experts were unambiguous: Greece’s withdrawal from the Economic and Monetary Union without a parallel withdrawal from the EU would be legally inconceivable.
The Greek government has been equally clear: Greece wants to remain part of the eurozone and wants to stay in the EU. No one else in the EU is calling for Greece to leave the Union, either. Greece is a vital link in the EU’s response to the migration crisis; the EU (and the US) also fear that a resentful and isolated Greece would lean towards Russia, threatening European and NATO’s unity.
Greece is unlikely to agree to a voluntary departure from the eurozone. But if Sunday brings no breakthrough in the negotiations, EU lawyers will have to help the European Council find a creative legal way to accommodate a ‘Grexit’ without triggering Greece’s withdrawal from the EU. Several legal options are being discussed in the Brussels corridors in case the emergency European Council summit fails to secure a deal.
None of them is legally watertight. Any of them would create tensions and uncertainties in the eurozone and the EU as a whole, as other countries considered the implications for their own relations with the EU. If forced out, the Greek government could challenge the decision in the Court of Justice. Yanis Varoufakis, the former Greek finance minister, has hinted at this possibility. But if the EU decided to expel Greece from the eurozone, it would have to choose one of the following approaches.
First, the EU could open up the EU treaties to accommodate a ‘Grexit’. The last time the EU changed the treaties was to introduce a legal basis for the creation of the ESM. But in most EU capitals there is currently no appetite to revise the EU treaties and Greece – whose consent will be needed – would oppose it, too. Treaty change could trigger referendums in some member-states. And many fear that David Cameron, the British prime minister, would attempt to use a revision procedure to push through more ambitious reforms to satisfy his eurosceptic backbenchers.
Second, EU member-states could use article 352 of the Treaty on the functioning of the European Union (TFEU). This article allows the EU to act urgently and adopt ‘appropriate measures’ in cases where the EU needs to attain a treaty objective, but there is no legal instrument at its disposal. Yet, to be able to use article 352 TFEU, the Council would need to meet a number of conditions. First, it would need to prove that its actions were necessary to achieve a treaty objective; second, it would need to show that the ‘urgent measures’ did not have the de facto
effect of changing the treaties; and finally (as the mechanism envisaged by article 352 requires a unanimous vote) it would need the support of all EU members, including Greece – which is unlikely to vote in favour of ending its own euro membership. Greece would be highly likely to dispute (in the Court of Justice if necessary) whether the urgent need to attain the objective set in the treaties of completing the economic and monetary union justified expelling Greece from that union.
Third, some commentators point to the possibility of using article 7 TEU
, which allows the EU to punish a member-state in the case of “the existence of a serious and persistent breach” of EU values. article 7 allows the EU to suspend a country from some of its membership privileges, but does not provide a mechanism to expel anyone from the EU as such. EU legal experts have recently been discussing the article, often referred to as a ‘nuclear option,’ in the context of the controversial domestic policies of Hungary’s prime minister Viktor Orban. In order to use this article, the EU would have to prove that Greece had violated core principles of the Union, such as human dignity, freedom, democracy, solidarity or equality. The Greek government might argue the reverse: that it has been the creditors who have breached these principles, by subjecting the Greek people to years of painful austerity.
Fourth, some think that a Greek veto can be circumvented. Andrew Duff, a former British MEP and member of the Convention on the Constitutional treaty, thinks that Greece could be ‘demoted’
to its previous status of a candidate to join the eurozone. Greece would find itself in the eurozone waiting room, and could join again when it fulfilled the convergence criteria. This demotion could be done by using the same article (140.2 TFEU) that applies to decide whether or not a country can adopt the euro. Since the mechanism envisaged by article 140.2 only requires a qualified majority of the eurozone members, a Greek veto could be circumvented. But this solution upsets the ‘irreversible’ character of the euro membership. More importantly, it creates a dangerous precedent for getting rid of one eurozone member without the consent of the others.
Finally, the creditors could do what Thomas Cromwell did when Henry VIII wanted a way out of his marriage to Catherine of Aragon: they could claim that the marriage between the eurozone and Greece should be annulled, because it was not valid in the first place. The creditors would effectively revoke Greece’s membership of the eurozone on the basis that the country had failed to fulfil the convergence criteria at the time of its joining. Greece would be almost certain to challenge its expulsion on these grounds in the Court of Justice. Such a manoeuvre by the creditors could also trigger an ugly argument in the EU about who was to blame for ignoring Greece’s deficiencies and letting it join the eurozone in 2001.
All in all, each option available for creditors to push Greece out of the eurozone would rely on questionable legal arguments to justify a morally dubious course of action – rather like Henry VIII. And would-be Thomas Cromwells should recall that he too outlived his usefulness to Henry, and was executed in the end.
Agata Gostyńska-Jakubowska is a research fellow and Camino Mortera-Martinez is a research fellow and Brussels representative at the Centre for European Reform.