Withdrawal from the Eurozone

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Withdrawal from the Eurozone denotes the process whereby a Eurozone member-state, whether voluntarily or forcibly, abandons the European common currency and leaves the Eurozone.

History

The possibility of a member state leaving the Eurozone was first raised after the onset of the Greek government-debt crisis. The term "Grexit" itself was reportedly[1] first used by Citigroup economists Willem Buiter and Ebrahim Rahbari in a 2012 report about the possibility of Greece leaving the Eurozone.[2] In the 2015 edition, the term "Grexit" entered the Oxford Dictionary,[3] defined as "a term for the potential withdrawal of Greece from the Eurozone, the economic region formed by those countries in the European Union that use the euro as their national currency.[4] Speculation followed about other countries as well, such as Italy, withdrawing from the Eurozone,[5] with economist Nuriel Roubini submitting that "Italy may, like other periphery countries [of the Eurozone], need to exit the euro and go back to a national currency, thus triggering an effective break-up of the Eurozone."[5]

Legal environment

The prevailing legal opinion[6][7] is that there is no provision in any European Union treaty for an exit from the Eurozone. In fact, it has been argued, the Treaties make it clear that the process of monetary union was intended to be "irreversible" and "irrevocable."[7] However, in 2009, a European Central Bank legal study argued that, while voluntary withdrawal is legally not possible, expulsion remains "conceivable."[8] Although an explicit provision for an exit option does not exist, many experts and politicians in Europe, have suggested an option to leave the Eurozone should be included in the relevant treaties.[9]

Other analysts[10] have submitted that there are basically three ways of exiting the Eurozone: by leaving and subsequently rejoining the EU, whereby a renewed membership in the European Union would be possible only when economic convergence had been achieved; through a Treaty amendment; or through a European Council decision. The amendment would involve an extension of Article 50[11] of the European Treaty that would set out the process for exiting the euro.

A decision by the European Council would "probably" have to be unanimous and "with the consent of the European Parliament." It would state that a Eurozone member-state "will no longer be part of the Eurozone" and will become a member-state "with a derogation", by withdrawing the Council's earlier decision for that state's entry into the Eurozone. Article 139[12] regulates the terms of this "derogation":

Member States in respect of which the Council has not decided that they fulfil the necessary conditions for the adoption of the euro shall hereinafter be referred to as ‘Member States with a derogation’.

The competence of the Council to retract its earlier decision would "possibly" invoke the argument that a given competence to decide on a matter always includes the competence to retract that decision.[10] Additionally, this retractile power can be derived from the "flexibility clause" of article 352 TFEU, which grants the Council, on a proposal from the Commission and with the consent of the European Parliament, the ability to unanimously adopt the "appropriate measures" to attain one of the objectives set out in the Treaties as set out in Article 3 of the European Union - essentially ascertaining that staying in the Eurozone would be so "devastating" for the well-being of the people of the member-state, and/or the rest of the peoples of Europe, that an exit would be legitimate in light of the Treaties' objectives. Then, it would be ostensibly possible to take a decision retracting the previous decision that approved entry to the Eurozone.[10]

Acknowledging that the method of any departure from the Eurozone remains "unknown," legal analysts have pointed out that any potential withdrawal "includes the spectre that euro obligations owed by residents of departing member states might be redenominated into [the] newly established national currencies."[13]

On the issue of leaving the Eurozone, the European Commission has stated that "[t]he irrevocability of membership in the euro area is an integral part of the Treaty framework and the Commission, as a guardian of the EU Treaties, intends to fully respect [that irrevocability]."[14] It added that it "does not intend to propose [any] amendment" to the relevant Treaties, the current status being "the best way going forward in order to increase the resilience of euro area Member States to potential economic and financial crises.[14] The European Central Bank, responding to a question by a Member of the European Parliament, has stated that an exit is not allowed under the Treaties.[15]

Operational process

On 18 October 2011, British businessman and Conservative life peer Simon Wolfson launched a contest that offered a £250,000 reward for "a plan for how the euro could be safely dismantled," and for "what a post-euro eurozone would look like, how transition could be achieved and how the interests of employment, savers, and debtors would be balanced."[16]

The winning entry, titled "Leaving the Euro: A Practical Guide,"[17] recommended that member-states who want to exit should introduce a new currency and default on a large part of their debts. The net effect, the proposal claimed, would be "positive for growth and prosperity". It called for keeping the euro for small transactions and for a short period of time after the exit from the Eurozone, along with a strict regime of inflation-targeting and tough fiscal rules monitored by "independent experts". The plan also suggested that "key officials" should meet "in secret" one month before the exit is publicly announced, and that Eurozone partners and international organisations should be informed "three days before".[18] The winning entry's team leader stated said, "if executed correctly, the pain of exit would relatively soon be replaced by a return to growth," something that would encourage other distressed states still in the currency zone to exit as well."[17]

Economic considerations

Specifically for Greece, a 2015 PwC study [19] expected the "new drachma" to depreciate "almost immediately" and inflation to rise "sharply" to around 6% on average. The study predicted that "the [new currency's] depreciation would lead to a high inflationary environment with a medium-term inflation rate of around 4%, more than double the expected rate in the Eurozone."[19] In 2015, German finance minister Wolfgang Schäuble ostensibly[20] proposed that Greece "temporarily" exits the Eurozone for 5 years, gets a 50 billion euro loan to cover its needs, and introduces a national currency.[21]

Finland's parliament decided in late 2015 to debate within the next year whether to quit the Eurozone or not, in a move seen by analysts[22] as unlikely to end Finland's membership in the single-currency zone but would "highlight Finns' dissatisfaction with their country's economic performance."[22]

Sea also

References

  1. ↑ "Grexit" by Kate Mackenzie and Joseph Cotterill, Financial Times Alphaville, 7 February 2012
  2. ↑ "Rising Risks of Greek Euro Area Exit" by Willem Buiter & Ebrahim Rahbari, Citigroup, 6 February 2012
  3. ↑ "Grexit, Brexit Added to Oxford English Dictionary; What's Next?" by Antonia Oprita, Real Money, 28 August 2015
  4. ↑ Grexit: definition, Oxford Dictionaries website
  5. 1 2 "Debt crisis: as it happened", Daily Telegraph, 11 November 2011
  6. ↑ "Brussels: No one can leave the euro" by Leigh Phillips, EUobserver, 8 September 2011
  7. 1 2 "The Eurozone crisis - the final stage?" by Charles Proctor, Locke Lord, 15 May 2012
  8. ↑ "Withdrawal and Expulsion from the EU and EMU : Some reflections" by Phoebus Athanassiou, Principal Legal Counsel with the Directorate-General for Legal Service, ECB, 2009
  9. ↑ "German advisory council calls for exit option in the eurozone" by Daniel Tost, EurActiv, 29 July 2015
  10. 1 2 3 "How to exit the Eurozone?" by Marijn van der Sluis, 22 March 2013
  11. ↑ Consolidated version of the Treaty on European Union/Title VI: Final Provisions
  12. ↑ Consolidated version of the Treaty on the Functioning of the European Union/Title VIII: Economic and Monetary Policy
  13. ↑ "Eurozone crisis – the corporate perspective", Herbert Smith LLP report, January 2012
  14. 1 2 Text of response by Olli Rehn, European Commissioner for Economic and Monetary Affairs and the Euro, on behalf of the European Commission, to question submitted by Claudio Morganti, Member of the European Parliament, 22 June 2012
  15. ↑ Text of message by Mario Draghi, ECB, to Claudio Morganti, Member of the European Parliament, 6 November 2012
  16. ↑ "I'm claiming the £250,000 Wolfson prize for how to break-up the euro", Daily Telegraph, 6 January 2012
  17. 1 2 "Wolfson prize for euro exit plan won by Roger Bootle", BBC News, 5 July 2012
  18. ↑ "Leaving the Euro: A Practical Guide", summary of the submission by Capital Economics for the Wolfson Prize, 2012
  19. 1 2 "What would a Greek exit mean for the Eurozone?", PricewaterhouseCoopers, March 2015
  20. ↑ "German Document Floats Five-Year Greek Exit From Eurozone" by Gabrielle Steinhauser, The Wall Street Journal, 11 July 2015
  21. ↑ "Germany mulling five-year temporary Grexit plan", Yahoo News, 11 April 2015
  22. 1 2 "Finnish parliament will debate next year leaving euro zone", Reuters, 16 November 2016

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