LUXEMBOURG/ATHENS – A “Grexit” on Sunday? Not so fast, say the lawyers.
Even if creditors pull the plug, Greece will remain legally part of the eurozone on Monday. It could hang on in a half-out, half-in state indefinitely, creating legal murk for businesses and adding to doubts about Greece’s economic prospects.
The reason is that there is no exit clause in the euro treaties and Europe’s finest constitutional minds are hard-pressed to invent one, especially since that would tempt other countries to go. So stop thinking about Grexit.
“We see no quick, easy decision-making process that allows, legally speaking, for Greece to voluntarily exit or be expelled from the eurozone by the other eurozone member states, or even a quick unanimous decision by all the member states,” said Stefaan Loosveld, a partner at Linklaters LLP in Brussels who was senior legal counsel at the European Central Bank (ECB) from 2003 to 2006.
A falling-out between Greece and European creditors at Sunday’s summit in Brussels could, initially, prompt the central bank to stop supplying euros to Greek banks. Only the ECB can create euros, and Greece’s stock is finite. Eventually it would run dry.
Greek Prime Minister Alexis Tsipras on Thursday submitted a proposal to European institutions offering to meet most of the demands made by creditors in exchange for a bailout of €53.5 billion ($59.2 billion). The proposal almost mirrored the one from creditors on June 26, which was rejected by voters in a July 5 referendum.
Though Tsipras ceded ground, he insists that long-term debt be made more manageable to allow Greece to recover from a crisis that has erased a quarter of its economy. The package of spending cuts, pension savings and tax increases will face its first hurdle in parliament on Friday.
Greece might end up like the mirror image of Montenegro or Kosovo. Those countries are outside the European Union with no legal right to use the euro, but have euro-ized their economies. The European leadership could cling to the legal fiction that Greece is in the euro when it really isn’t.
The euro-is-forever argument is rooted in Article 140 of the EU treaty, which sets the procedure to “irrevocably fix” exchange rates for countries joining the monetary union.
The founders “never remotely dreamt of the idea of going into reverse,” said Graham Bishop, a financial consultant who has been advising EU institutions on euro policy and regulation since the days of the German mark and French franc.
The latest edition to the treaty added language enabling a pullout from the broader EU, which Britain would use if it decides to go in 2017. However, that 2009 revision — hammered out before the financial crisis by, among others, German Chancellor Angela Merkel — gave no consideration to a euro-exit clause.
As a result, Grexitologists are parsing more than half a century of European constitutional law, reading between the lines, assessing woolly questions like “intent” — all to make happen what isn’t supposed to happen.
Speculation centers on Article 352, the latest incarnation of a “flexibility clause” that dates to the EU’s founding. It allows European governments to take steps “to attain one of the objectives set out in the treaties” when the powers to do so haven’t been enumerated.
Article 352 isn’t only in vogue with the legal crowd. Dutch Finance Minister Jeroen Dijsselbloem, who chairs meetings of euro finance chiefs, was photographed on June 22 clutching a document stamped “confidential” with blurry references to “legal exit” and “352.”
The authorship and purpose of Dijsselbloem’s memo weren’t clear, but the Article 352 ruse would throw up multiple problems. First, dismantling the euro is hardly a treaty “objective.” Second, it requires all 28 EU countries and the European Parliament to go along, giving Greece a veto over its own ejection.
If the Greeks could be brought around, others with parochial, non-Greek interests could stand in the way. Spain, faced with a secessionist movement in Catalonia, tends to vote against breaking things up. Britain would have to put the question to the House of Commons, where any EU-related discussion is toxic.
Another stratagem would be to use the newly minted EU-exit provision to allow Greece to secede from the bloc and simultaneously re-enter, like any new EU member, with its own currency. These legal gymnastics in Article 50 are supposed to play out over a more leisurely two-year timetable, however, and also require unanimity.
That tactic “is not generally regarded as a practical option,” according to a memo coauthored by Loosveld, the Linklaters partner, on the legal implications of the Greek crisis.
Article 140, the euro-entry clause, offers a potential way around the odd national veto. It foresees a vote by supermajority to let countries into the euro and, according to former EU Parliament member Andrew Duff of the U.K., could be reverse-engineered to let countries back out.
Duff, a drafter of the latest EU treaty, spelled out the maneuver in a blog post entitled: “How to Leave the Euro More or Less Legally.” In a telephone interview, he said that while cutting Greece loose would set a bad precedent, governments and the EU courts may have no choice but to wrap a legal bow around it after the fact.
“The orthodox approach disapproves of such creative speculation, but there’s considerable support for the thought that we are going to have to legalize something that under a strict interpretation of the treaty is illegal,” Duff said.
Such a retroactive blessing would take time, and would be subject to a raft of court challenges. In the meantime, the question of what is legal tender in Greece — the euro, government-issued IOUs, or the new drachma — would perplex exporters, importers, investors, tourists and the locals.
Not knowing which currency to do business in — or which one to use in settling contracts reached before a Grexit — would sow legal uncertainty even if Greece and euro governments agree on an exit mechanism, said Stephen C. Mavroghenis, a lawyer with Shearman & Sterling LLP in Brussels.
“There may however be private lawsuits, the banks, contracts,” Mavroghenis said. “There are going to be a lot of lawsuits on that side and it’s going to be a mess.”
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