Steve Peers
After a couple of years without
any (apparent) crisis, the future of Economic and Monetary Union (EMU) is
threatened again, following the decision to call snap Greek elections in
January. What would be the consequences if the anti-austerity party Syriza
becomes the government?
First of all, such an outcome is
not yet certain. As Open Europe’s analysis points out, Syriza has only a
modest lead in the polls, and even if it becomes the largest party, it may well
fall short of having a majority of seats, in which case it would have to form a
coalition with another party.
Secondly, it’s necessary to
realise that Syriza has, in principle, relatively modest ambitions. Its policy
is not to leave the EU or even the single currency, but rather to renegotiate Greece’s
debts and the related austerity obligations. Even in previous elections, it
sought to default on the debt, rather than leave the EU or EMU.
Having said that, it is possible that
Syriza might decide to threaten more decisive action if renegotiation does not
go well. Or that party’s more radical elements might take charge. Or, in the view of some (see this Washington Post commentary), Greece might be forced out of the euro by other Member
States, particularly Germany.
While the main issues arising
from this situation are political and economic, there are also legal
constraints that cannot be overlooked. Some key measures taken to save the euro
in recent years were litigated before national courts (particularly in Germany
and Ireland), as well as in the CJEU, notably the Pringle case (concerning the treaty establishing the European
Stabilisation Mechanism) and the pending Gauweiler
case (discussed here), concerning the European Central Bank policy of
buying government bonds. The Advocate-General’s opinion in the latter case is
due in mid-January – in the midst of the Greek election campaign.
Let’s start with the most radical
outcome. Every Member State has an option to leave the EU, set out in Article
50 TEU. It would be unwise to invoke that provision unless a Member State
genuinely wants to leave (see my earlier blog post on that provision). Conversely,
however, it’s entirely impossible to force a Member State out of the EU against
its will. The most that the other Member States can do is to suspend its membership
in the event of a ‘serious and persistent breach’ of EU values, in particular
human rights and democracy (Article 7 TEU).
What about departure from EMU?
The Treaties contain detailed rules on signing up to the euro, which apply to
every Member State except Denmark and the UK. Those countries have special
protocols giving them an opt-out from the obligation to join EMU that applies
to all other Member States. But there are no explicit rules whatsoever on a
Member State leaving the euro, either of its own volition or unwillingly, at
the behest of other Member States. There’s
an obvious reason for this: the drafters of the Maastricht Treaty wanted to
ensure that monetary union went ahead, and express rules on leaving EMU would
have destabilised it from the outset. Put simply, legally speaking, Greece can’t
jump or be pushed from the single
currency.
But other currency unions have
fallen apart in history, despite any legal prohibitions that may have existed
against it. So it’s important to consider also the practical constraints: it’s
not realistic to imagine forcing Greece to leave or to stay in EMU against its
will, short of invading and occupying the country. How would Greece be forced
out exactly? By printing drachmas in Frankfurt, dropping them from the air over
Greece and hoping that Greeks use them?
In the event that Greece did
choose to leave EMU in practice, EU law would have to be amended (probably with
retroactive effect) to regulate the position. Although there are no express
provisions on this issue, arguably Article 352 TFEU (the default power to
regulate issues not expressly mentioned in the Treaties) could be used. This would
require a unanimous vote of all Member States: it wouldn’t be possible to use
the EU’s ‘enhanced cooperation’ rules (allowing a group of Member States to go
ahead without the others), since those rules can’t be used where an issue falls
within the scope of the EU’s exclusive competence, and the single currency
falls within the scope of the exclusive competence over monetary policy. If
Article 352 was not legally possible (someone might bring a successful legal
challenge if it was used, or one or more Member States might have purely legal
objections), it would be necessary to amend the Treaties.
The least radical outcome is that
Greece’s debt and austerity obligations are simply renegotiated. But there are
legal constraints here too. Most significantly, Article 136(3) TFEU states that
any financial assistance must be subject to ‘strict conditionality’, consistent
with the CJEU ruling in Pringle. The
CJEU also made clear in that judgment that the ‘no-bailout’ rule in the EU
Treaties (Article 125 TFEU) allowed Member States to offer each other financial
assistance on the condition that it took the form of loans, rather than a direct
assumption of Greek government debt by other Member States. Moreover, the CJEU
pointed out, the ESM Treaty required that in the event of non-payment, the
loans would remain payable, and had to be charged an appropriate level of
interest.
So it’s not possible for Member
States to drop all conditionality as regards loans to Greece, to forgive debt
as such or to loan money interest-free. But it is open in principle to reduce
the stringency of the conditions somewhat, to reduce the interest rates payable
and to lengthen the repayment period – although there is always the risk that
some litigant will try to convince a national court or the CJEU that this is
going too far. Moreover, the rules in the EU Treaties only bind EU institutions
and Member States, not private parties, third States or international organisations
(although it might be argued that Member States are constrained as members of
the IMF not to violate the no-bailout rule indirectly). So any renegotiation or
default as regards such creditors is not subject to EU law rules in principle,
although of course other legal rules might be applicable.
Whether such fairly modest
renegotiation would do enough to reduce Greece’s mountain of debt significantly,
or to satisfy the voters which supported a Syriza-led government, remains to be
seen. The greater impact may be longer-term, in the event that a Podemos-led government
comes to power in Spain, or that new or current governments in other Member
States which have been bailed out demand a similar renegotiation.
Finally, it should be recalled
that renegotiation of loans might not be the only possibility to help out Greece.
For example, arguably the Treaties do not rule out a form of (supplementary)
unemployment insurance system as between Eurozone Member States, since it would
not take the form of paying off another State’s debts as such. Admittedly, such
a system would provide indirect financial support to another State, since it would
reduce costs which that Member State might otherwise have. But the same might
be said of loaning money to that Member State, at interest rates far lower than
it would be offered on the free market, via means of the ESM Treaty – and the CJEU
has already found that this didn’t violate the no-bailout rule. Moreover, the
previous Commission has already done a lot of preparatory work on this
issue (see the fuller discussion here). Such a scheme could probably be launched either inside the EU legal framework,
or outside it.
It’s up to Greek citizens to
decide if they want to vote for Syriza or not, and the EU institutions and
other Member States should leave them alone to make their choice. But if Greeks
do decide to vote for that party, it would be tiresome and counter-productive
to react with bluster and threats. Why not take this opportunity to re-engage
with the millions of EU citizens who are affected or angered by austerity, and
re-orient the EU towards ending that austerity, instead of generating more of it?
That’s more easily said than done, of course. But an unemployment insurance
system would not only have an economic rationale (as an automatic stabiliser)
but also a political one, demonstrating that the EU can assist those who have suffered
from the economic downturn directly.
Photo credit: Xendpay.com
