Over at the Opinio Juris blog, I’ve been raising questions about the EU, governance, and the eurozone crisis. My most recent query was how, from a legal standpoint, the withdrawal or expulsion of Greece from the eurozone might actually take place. Everyone is talking about it, it seems – or tweeting about it, at least. (Comments open.)
The assumption of many commentators seems to be that if Greece wants to quit the eurozone, no problem, it just walks – the problems are not legal or governance as such, but practical matters of how to get drachmas going again, will it be “orderly” or “disorderly,” and what happens to the banking system, capital flight, etc. The assumption also seems to be that leaving the EZ does not have consequences for Greece legally in other EU frameworks – everything else just marches along as before, and it just becomes an EU country that does not use the euro. The same assumptions seem to be at play in the scenario that Greece is somehow kicked out of the EZ. It’s not entirely clear who does the kicking, but again commenters seem to assume that if that’s what Germany and France want, it somehow happens.
As a matter of legal requirements, however, it does not appear that simple. I mean, maybe in the event, it turns out to be one of those moments when everyone politely ignores the governing treaties of the EU – but that’s not what the documents themselves suggest about the process. The ascension of the euro was intended in the treaties to be a one-way event. In 2009, a member of the European Central Bank’s legal staff, Phoebus Athanassiou, prepared a paper on the legal requirements for withdrawal and expulsion. It is a fine paper and an excellent discussion and is available at SSRN. No doubt in the emergency of the moment, ad hoc will prevail over legal form. Whether this creates any lasting issues for governance or legitimacy, only time will tell. But on paper, at least, the path to a Greek exit is legally daunting:
This paper examines the issues of secession and expulsion from the European Union (EU) and Economic and Monetary Union (EMU). It concludes that negotiated withdrawal from the EU would not be legally impossible even prior to the ratification of the Lisbon Treaty, and that unilateral withdrawal would undoubtedly be legally controversial; that, while permissible, a recently enacted exit clause is, prima facie, not in harmony with the rationale of the European unification project and is otherwise problematic, mainly from a legal perspective; that a Member State’s exit from EMU, without a parallel withdrawal from the EU, would be legally inconceivable; and that, while perhaps feasible through indirect means, a Member State’s expulsion from the EU or EMU, would be legally next to impossible. This paper concludes with a reminder that while, institutionally, a Member State’s membership of the euro area would not survive the discontinuation of its membership of the EU, the same need not be true of the former Member State’s use of the euro.
Meanwhile, some are suggesting that Greece is already fashioning the beginnings of a new currency, through “quasi-monies,” in this case so-called pharma-bonds. As a recent Business Insider report notes, citing an economist’s report from UBS (Stephane Deo quoted below, emphasis added):
The Greek state hospitals accumulated arrears to suppliers during the period from 2005 to 2010. In May-June 2010, the Greek government decided to put an end to this practice and decided to take up this outstanding debt (law 3867/2010). In the following months, all the accumulated debt of public hospitals and the healthcare system from 2005 to mid 2007 was settled on a cash basis. The amount was EUR1.5bn for the years 2005 and 2006, with an additional EUR240 million for the first half of 2007. A total of EUR5.6bn accumulated between 2007 and 2010, was settled with zero coupon bonds. This was the creation of the “Pharma-Bonds”.
These financial instruments are bonds, and have all the characteristics of Hellenic Republic Bonds: they bear international securities identification numbers (ISINs); they are negotiable on the Athens Exchange and they rank pari passu with other Greek debt. The government, in one of its press releases, notes that “bondholders who choose to discount these bonds at the banks will crystallise a 19% discount versus their original claim.”
We would argue, however, that they are more than just another bond issued by the Greek government. To be specific, they seem to us very akin to what economists call quasi-monies. These quasi-monies have appeared in a number of cases, usually put in place by government to find an escape valve out of nominal fiscal rigidities in the face of a financing issue. This especially happens in a case of a government of a monetary union that cannot print money to fund its deficit.