“Withdrawal and Expulsion from the EU and EMU: Some reflections”

Could Greece be forced out of the euro zone – or for that matter the EU – as a result of its fiscal delinquency?

As we reported last week, it’s a matter recently taken up in an EU paper entitled “Withdrawal and Expulsion from the EU and EMU: Some reflections” by Phoebus Athanassiou and published in December 2009.

On Monday, the Telegraph’s famously anti-EU writer Ambrose Evans-Pritchard, having got his hands on the paper, concluded it showed officials have begun preparing for the prospect of a country leaving the EU’s single monetary union.

Specifically, he interpreted the paper as being a significant warning to Greece and other peripheral Euro Zone member states saying:

Those who suspect that European Court has the power pretensions of the Medieval Papacy will find plenty to validate their fears in this astonishing text.

Crucially, he argues that eurozone exit entails expulsion from the European Union as well. All EU members must take part in EMU (except Britain and Denmark, with opt-outs).

This is a warning shot for Greece, Portugal, Ireland and Spain. If they fail to marshal public support for draconian austerity, they risk being cast into Icelandic oblivion. Or for Greece, back into the clammy embrace of Asia Minor.

And while he may not have been wrong in saying it suggested a member state’s exit from the EMU would be legally inconceivable without a parallel exit from the EU, he did overlook one other key finding.

As FT Alphaville notes here in bold:

…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.

So that means the event is still seen as hugely unlikely.

The report, meanwhile, also concluded that even if a country was ejected from the EMU, or for that matter the EU, there was nothing stopping it from continuing the use of the euro:

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.

Indeed, a distinction should be made between a Member State’s euro area participation, in an institutional sense, and the circulation of the euro in its territory.

Institutionally, a former Member State’s NCB could no longer form part of the euro area (i.e. it could not participate in the governance structure and decision-making bodies of the ESCB), at least not without an amendment to the EC Treaty and the Statute of the ESCB. Whether or not a former Member State could continue using the euro is a different, more controversial question, harking back to the ‘euroisation’ debate (especially if the Member State concerned proposes to use only the euro, which it would obtain from the market).

Although how much sense that would make for Greece in any event is questionable.

The point is, in the eyes of the EU, we’re nowhere near euro abandonment or for that matter old-currency reinstatement.

http://www.ecb.int/pub/pdf/scplps/ecblwp10.pdf

Some thoughts directly from ECB. So, why publishnig a paper about it, if it is "absurd" ?.