Yesterday I argued that there is no wish on the continent to plan an orderly break up or slimming of Euro membership. Only a fast moving and unpleasant crisis, like that which hit the ERM, could force change in Euro membership. I also argued that there is currently no sign that the weaker members blame the Euro for their troubles or wish to leave.
I have before mentioned that to me the best way to handle any urgent need for a country to exit the Euro would be to move that country by unanimous vote from full membership of the Euro to candidate membership of the Euro under the provisions of the existing Treaty. These two categories already exist, and there is nothing in the Treaty to prevent a full member becoming a candidate member, though the Treaty was clearly written with a wish that the movement would all be the other way. Movement from candidate member to full member is determined by adherence to the qualifying criteria. As a country like Greece clearly does not meet the criteria by a very wide margin there could be a case for switching her the other way.
This would clearly need the consent of all. This is only likely to be forthcoming in a crisis of sufficient force to make member states believe that it is no longer tenable to keep a given country within the scheme. This could change the views of full members intending to stay as full members.
Why would the exit country or countries accept? The only way I could see that they could be persuaded to vote for their own loss of full membership is if they needed to receive financial grants or loans from the other members to pay their bills. A change of membership category could then be made a condition of the loan or grant, leading to their consent.
April 5, 2012
Wouldn’t a British Variant of the European Union provoke such a crisis? How could a Union of the British based on the European Model that embraces all the Irish achieve its fullest potential or even operate effectively whilst still part of a larger and similar Union of States?
April 5, 2012
This looks an excellent loop hole! But I cannot see it coming to pass in my lifetime.
The politicians in the EU – and that includes the national civil servants too who, in this country, are getting more and more power under Mr Cameron – are joined at the hip with the civil servants and other national politicians in Berlaymont. They actually believe in what they are doing. Also there is a mind set – very common in the Labour Party and in Socialists generally – that tax and targets and government are the answer. We happen to think they are the problem but we are, at the moment, in a tiny minority.
So you are right – we need a serious break down before there is a rethink. Even then, I regret, the response will surely be: “More Unity! More Tax!”
April 5, 2012
“More Unity! More Tax!” – sounds like Scottish Labour – keeping the UK and increasing the Council Tax in Scotland.
April 5, 2012
@Martin. I missed this one. What’s that all about???
April 5, 2012
Thank you. In September, Mr Amadeu Altafaj-Tardio (described as an EU economy [sic] spokesman) was quoted as saying: “Neither exit nor expulsion from the euro area is possible, according to the Lisbon treaty under which participation in the euro area is irrevocable”. This point is surely crucial. One would expect that “the [Lisbon] Treaty was clearly written with a wish that the movement would all be the other way [towards permanent membership]”. However, can it be interpreted to allow exit or does it more or less say that, once you’re in, you’re in for keeps? Treaties can, of course, be changed, but that needs 27-nation unanimity and maybe another Irish referendum.
Reply: The Treaty says an EU member is either in the Euro or is a candidate member (unless the country has an opt out). The reason they will need to avoid changing the Treaty if the crisis hits is speed. They will need tosort things out over a week-end, bnot wait a year to get a Treaty change through.
April 5, 2012
Meanwhile more and more pointless damage, lives disrupted, jobs destroyed, riots created and all in the done in the name of the evil, undemocratic, socialist EU. Signed up to for the UK by Heath, Wilson, Thatcher, Major, Blair, Brown and Cameron all (save Wilson perhaps) without any authority from the people to do so.
April 5, 2012
lifelogic: ” .. without any authority from the people to do so.”
That’s what happens when you paypoliticians a wage. They become a seperate class that operates on the general population and become a force for their own special interest, not the general good.
Democracy can only function if you draw your representitives from an educated population.
April 5, 2012
Company director’s too are able to help themselves to shareholders money due to failures in shareholder democracy while running the companies into the ground.
April 5, 2012
The “debt suicide of the man in Athens yesterday was yet another tragedy, and highlights what is missing, viz “the people”, from all the academic debates about different scenarios with regard to the future of the eurozone. See D Tel. report today for example. I wrote yesterday in a post on this site yesterday about this human aspect, but for some reason my comments were not published.
April 5, 2012
I like this comment. The man involved (there have been several in Italy too) was about my own age and I think I know a little of how he feels.
April 5, 2012
Given how many European countries are trying to join the EU it doesn’t seems to be as evil or undemocratic as you claim it to be. Also what’s wrong with socialist; unlike capitalism it actually benefits the people rather than the wealthy.
April 5, 2012
It thats the case why did East Germany need a fence to keep its people from emigating away from socilaism to capitalist West Germany, why was there no movement the other way? Why do North Koreans like to escape to the capitalist South, but no South Koreans want to emigrate to the equal, socialist North? We have had a 70 year control case for socialism in Eastern Europe. Today its only North Korea, Zimbabwe and Cuba (and perhaps Venezuala) which practice it. You should try a holiday in North Korea this year and let us all know what its like.
April 5, 2012
I do not think that one country will trigger a crisis, there would have to be several countries monetary systems defaulting at the same time. The financial systems presently created in the EU can cope with one individual country as in the case of Greece. If several countries suddenly had catastrophic financial difficulties this would probably lead to an uncontrolled default and the EU fire fighting systems would have to go into overdrive using the EFSF so called bail out mechanism. We are of course assuming that a country will need to exit the euro and the evidence so far is that this is very unlikely to happen in the forseeable future since as previously stated the bail out fund is approaching 1 trillion dollars and the political will to maintain the euro is strong. Hypothetically if say Greece,Spain and Portugal all had major problems borrowing in the bond markets at the same time this could trigger the event all europhobes are hoping for i.e the demise of the euro. So far the only country which has demonstrated real financial problems is Greece and the answer to it’s future financial problems is a further bail-out.Future speculation in poilitics is a mug’s game, to put it simply the future for the EU and the euro is unknown and will be determined by events.
Reply: Ireland and Portugal are like Greece dependent on subsidised special loans from the IMF and the EU already. There are serious weaknesses in parts of the Euro banking system. Whilst the Euro/EU can support say Greece if they wish, they could not do the same for Spain or Italy so easily given their size. The current pressures are on Spanish bonds.
April 5, 2012
While the Germans and other northern countries need to keep the Euro low and their industry competitive, there will be no exit for PIGIS.
April 5, 2012
The problem is that politicians are asking the wrong question.
It’s not in or out, how to leave, how to shake it about to paraphrase the hokey cokey.
The question is much simpler. Who takes the hit financially, and for how much? That’s the underlying question to it all.
Politicians are spending billions to make sure that they aren’t the ones to tell people, we’ve lost you billions.
Reply: Indeed, it will be an argument about who takes the hit. In Greece it is law abiding taxpayers and institutions and individuals who lent the Greek state money who have taken the hit so far. Of course many individuals throughout the Euro zone are taking the hit in lost jobs and despressed living standards.
April 5, 2012
I agree – to both Nick and to the reply.
April 5, 2012
A very interesting post.
“I also argued that there is currently no sign that the weaker members blame the Euro for their troubles or wish to leave.”
There are certainly many bodies of people in the countries you mention who do wish to leave – they are just not in power. One thing you may wish to bear in mind is that an exit from the Euro may require a change in governance in the country wishing to leave. Even though your strategy does not demand it John, it is likely to take place as the previous government will have had all their credibility wrapped up in staying in the Euro.
So it’s important to try to ensure that the countries involved have functional and credibly oppositions who are prepared to lead their countries through exiting the Euro.
April 5, 2012
Bring on the revolution!!!!!!!!
April 5, 2012
And then?
Another civil war and the inevitable dictatorship?
April 5, 2012
If we ended up with a US style constitution (politics corrupts so let’s limit the damage that politicians can do) it wouldn’t be too bad.
Comparing the current rabble to the founding fathers seems sacreligous but you have to think they’d all have had to have read Locke, Burke et al during their Oxbridge PPE course so either think it’s all a load of outdated nonsense, were sleeping / hungover, and / or relied on daddy’s contacts to see them through into a bag carrier role / year long jolly in Hong Kong / etc. regardless of how badly they do in exams.
April 5, 2012
Ghandi is still a great film.
April 5, 2012
The EU created by Monnet operates steathily by a system called engrenage, basically creeping socilaism.We all like to think that we are individual countries and people but slowly and steadily we are being europeanised to assuage german guilt for the second world war.The nation state is seriously under threat as is democracy and we are all sleepwalking into the EUSSR.This is what is actually happening now and it is real.What can conservatives actually do now? Try to vote in a real conservative government at the next election and hope that UKIP replaces the liberal democrats as the third largest party since Clegg’s demise is certain, unfortunately there are still a number of years to the next election and our future is gradually being controlled by unelected, stalinist -type eurocrats.Kafka painted the picture developing in Europe in The Castle-mysterious unknown bureaucrats controlling the destiny of individual people-a terrifying prospect in my opinion.
April 5, 2012
I honestly don’t know. There are so many opinions on the eurozone. Some days I think it would be wise for the Countries such as Portugal, Ireland, Greece and Spain to exit thus making a much smaller group. Then when I think of the fall-out from all that debt I am not so sure. Other days I think it is just Greece that should go. I read a great deal on the subject but still come to no conclusion. I worry how any decision made in the EU about exits of Countries will effect the UK and its banks.
What I do know is that this failed, ill thought through experiment is causing untold misery to millions of ordinary people. Yet despite all the pain, the people of these Countries who are struggling within the EU, still believe in the project. One has to ask why? Germany seems to be the only Country which has benefited and now will not put its money behind its beliefs. As someone said recently, it really does feel like a failed marriage that continues because no one will admit it is over.
April 5, 2012
Europeans support the euro simply because it’s too much hassle to change their money every time they go to another EU country. It also makes it easier to buy things online.
They also realise that not all their problems stem from the euro but are mostly due to their own inept Governments. While leaving the euro will solve some problems from the PIGIS it will not solve all their problems and is likely to create some new problems.
April 6, 2012
uanime5,
You do make me smile at times. I hardly think online shopping is a priority with people in Countries which are struggling at the moment in the EU.
I am very surprised to find you defending the EU considering you oppose every austerity measure the UK Government tries to bring in.
The problems that certain Countries of the EU are experiencing is a direct result of being in the Euro.
However, I have say, I personally have a very open mind on issues relating to the EU. My reasons are, that I do not intend to throw stones at Countries that find themselves in exactly the same position as the UK by overspending. I don’t particularly like the economic decisions that are being made for recovery in the UK, therefore it is just possible they may have it more right in some ways than we do. No one has given me a convincing argument as to how Countries can exit the EU in an orderly way. Lastly because the people of these Countries wish to remain part of the Euro.
My reasons for disliking the EU are probably totally different to anyone elses.
I believe in a Global Economy. The really important markets for the UK will in the years to come, be well outside the EU borders, making the EU of far less importance. I am more interested in what is happening in say, India and China. I therefore do not like the UK being restricted by being tied to the EU. The World is changing, the less democratic Countries are coming to the fore, the UK needs to be prepared for that if we are to compete.
April 5, 2012
This is a good idea except having 27 parliaments having to approve it makes it equally fanciful to the ideas you so quickly criticise.
Unanimous vote? By the council alone? As far as I am aware there are three treaty-based amendment methods (of which this is likely to be one), one which requires all govts approvals (i.e., 27 parliaments), and two which can be done via unanimous votes, the fast-track method and the passarelle. I believe such an amendment could not come into effect after the 6month period after which any ability of a parliament to veto would expire.
While we know exit from EU would effect exit from EMU, do we similarly know that moving from full to candidate membership would effect similar exit from EMU. The topic of exit and expulsion was handled in an ECB legal paper, but your method of candidate membership was not discussed.
While an author to one of the ‘fanciful’ ideas, my day job is as a political realist. I consequently believe the only politically viable option is one which the contest was not meant to address (since it is anything but optimal).
Treaties are merely contracts between sovereign states. Contracts are broken all the time. Unilateral exit with currency controls, and subsequent rubberstamping by the larger EU (perhaps by the method of becoming a candidate member as you suggest). It could be afforded in the context of EU support for the banking system.
I do not see the building of immediate consensus being at all plausible during the short timeframe that is needed to prevent capital flight (i.e., a weekend)!
Reply: As I argue, none of this is going to happen unless there is a crisis so intense that all participant governments recognise they can no longer hold the Euro together by current means. There is no wish by the main players to plan for some new currency or some transition to fewer members of the Euro. They think they can get through the rolling crises they are currently experiencing. If it turns out to be like the ERM they will one day see the game is up and need a urgent route to shed the weakest members of the scheme. In that circumstance, and that alone, would there be a unanimous vote to allow exit. The exit country istelf would be forced to vote Yes to its exit, as it would by then be in need of all kinds of EU emergency assistance.
April 5, 2012
I regret being unable to follow precisely how this would work.
1. Presumably Greece would need to return to its own currency, with all of the costs and trauma this would incur. How could any substantial devaluation be avoided, this presumably being the most important factor for the Greek public and why most wish to stay with the Euro?
2. What would be the value difference for the Greeks between “candidate” status and exiting the Euro altogether? You imply that the remaining members of the Eurozone would make good Greece’s debts but what incentive would they have for doing so? It just seems Greece would be paid off to leave but could not this be done without the “candidacy” step?
3. Is this just a wheeze to get around the problem of there being no provision in the EU treaties for withdrawal from the Eurozone? Presumably any “candidate” country can then either withdraw its candidacy voluntarily or have it withdrawn for failure to comply with the criteria.
Reply: Greece would of course re create the drachma and devalue.
My proposal allows urgent action when the crisis blows, within the exisiting Treaty. There is no provision to refuse to be a candidiate member of the Euro unless you are the UK with an opt out. Nor is there any early likelihood of Greece hitting the targets required to become a full member of the Euro again, though that would be in Greece’s gift if she wished to take strong measures to qualify all over again.
April 5, 2012
My thanks, JR.
April 5, 2012
The comments above have stolen my thunder. This is a political project which is being done on a socialist agenda and where large economies are somewhat reliant upon the current structure. Therefore any breakup will be fought tooth and nail by those with a vested interest, even if it means renegotiation and alternative intergovernmental mechanisms to keep it alive.
The only way I can see any kind of breakup is if a country such as the UK drives parliament towards a referendum and the country vote for a structured exit. This may spark some kind of chain reaction in a minority of other countries.
April 5, 2012
Why would other countries leave the EU when if benefits them? Most of the poorer EU states receive a surplus from the EU so they have no incentive to leave, while the richer countries are the ones with the vested interests.
April 5, 2012
The first country that goes into an effective gold standard , eg. Bills of exchange cleared for gold and not a fractional reserve pseudo gold standard, will have such monetary stability and stable rates that businesses and investment will flock to there from the hell of the fiat casino.
April 5, 2012
That won’t happen because the gold standard will limit the amount of money in the economy, which will prevent new money being created for new business opportunities.
April 5, 2012
I was looking forward to your pre-billed suggestion but have to say I found it a bit anti-climactic. Would not some EU judge just say that ipso facto one cannot be a candidate for membership if already a member and that would be the end of that?
Going backwards is not all bad though, but what I suggest is that the Treaties’ recent requirement for unanimity be abrogated, perhaps specifically only for this instance, the easier to enable insertion of a Euro Exit mechanism. One could even hope that said judge might opine that such an implied term could be inferred.
The Exit Clause could lie in abeyance for possible use as and when. If never used, no harm would have been done, but people would not feel as trapped, helpless and frustrated as many of them do now.
Reply: No, a Euro judge is unlikely to overturn the settled will of the 27 member states and the Commission, who woudl all be in this together, as the Treaties do not prevent what I am suggesting.
April 5, 2012
I have trouble accepting that it was ever the “settled will” that we plough on come what may under the totally unforeseen circumstances that prevail today (which might very well sooner or later get worse) and if you are right that no Euro judge can be found who will see sense what about a vote by the Security Council–given that one reads that the global economy is under threat? One attempts to brainstorm you undertand. You may say that the Security Council has no jurisdiction or somesuch but on any basis it might provide a powerful catalyst. I emphasize that I am mooting a two step process in which the first step is merely getting rid of the necessity for unanimity in a special exercise aimed at allowing a vote on the second step of getting a Euro Exit mechanism in to the Treaties.
Reply: The main powers – USA, China etc – want the Euro to succeed and will not take any adverse action against it at the UN
April 5, 2012
Hold Hard. My humble thoughts have had nothing to do with attacking the Euro as such, because it is clearly here to stay in some form, rather the opposite in fact in that I should have thought that the exit of countries that are not suited to the Euro would strengthen rather than weaken it. We are all in worse trouble than I thought if that is not correct–so I am not with you on your comments about the main powers.
April 5, 2012
How does devaluation help a country with bloated public sectors and inefficient private sector? All devaluation does is make these sectors look cheaper for a few months. Then soaring import costs make themselves felt, domestic inflation rises followed by interest rate hikes etc etc.
Did the Labour’s UK 1967 devaluation do anything but paper over the cracks ?
April 5, 2012
If we had a capitalist system (I accept we don’t) the theory would be that it would help get rid of the rubbish and allow leaner, better ran companies to soak up the excess labour and thrive in the more favourable environment.
Or countries could print loadsomoney and pretend everything’s fine. That will surely work out better in the medium term.
April 5, 2012
What if the UK said that it was unwilling to contribute to any more bail out funds for Euro members, either the EU or the IMF. By the way, IMF funds are not meant to be used to bail out currencies, and the currently extremely political head of the IMF is blatantly breaking these rules.
Let us try an additional move. Tell Greece that the UK would pick up the tab for coverting all of Greece’s tills to new Drachma. If a new Drachma were to be floated on an initial basis of one per Euro, the cost might not be huge. The new Drachma could then float down as Greece inflated, in order to gain competiveness and to repay its debts in clipped coinagae.
Not in the UK’s interest? Compared with what alternative?
April 5, 2012
The problem for Greece is that their debts won’t be in drachmas, so as the drachma devalues their debts will soar. Given Greece can’t borrow because of its high debts making them larger will just make everything worse.
April 7, 2012
No. Greece must also be allowed to convert its debts to new Drachmas and reschedule. She would have to agree to and upper limit on inflation. Granted, that would be a partial default but better than the current one.
April 5, 2012
So when the European Council unanimously decided that Greece should leave the euro and revert to being a candidate for euro membership, what legal base would be cited in that Decision?
The answer is that the EU treaties provide no legal base which could be cited.
There were two Decisions taken on May 9th 2010 which cited no legal base, but that was not acting within the treaties but BREAKING them.
Even if all the EU governments agree to break the EU treaties, for national parliamentarians such as yourself the consequence of their agreement is that your government has broken its word to you and acted illegally under the laws you passed to approve those treaties.
Of course this lapse into illegality could be remedied after the event, insofar as retroactive treaty changes could be agreed and duly approved by all of the national parliaments, but that is hardly the best way to proceed.
Reply: The Treaty would allow the switch as I have described. I do not think it would be illegal, and the ECJ would not find it as such if there were a unanimous resolution to achieve it.
April 5, 2012
Well, whereabouts in the EU treaties does it say that the European Council, an EU institution, may make such a Decision?
Because if the European Council has not been granted that power, somewhere in treaties, then it has no legal authority to do it.
As made clear in a number of treaty articles on the principle of “conferral”, and in particular Article 13(2) TEU on page 22 here:
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2010:083:0013:0046:EN:PDF
“Each institution shall act within the limits of the powers conferred on it in the Treaties, and in conformity with the procedures, conditions and objectives set out in them. The institutions shall practice mutual sincere cooperation.”
The legal authority for actions within the EU comes from the national parliaments, through their unanimous approval of the treaties, and they have not authorised the European Council to remove a country from the euro and return it to the status of a candidate for euro membership.
Reply: They would support this in a crisis – I cannot see a problem. I do see a problem if they need to agree a Treaty change before anything can be done!
April 6, 2012
Well, yes, if the treaties hadn’t been suitably amended beforehand then in the crisis the EU leaders would have no alternative other than to come up with an ad hoc solution and sort out the legalities afterwards. It would take too long to get all the national parliaments to approve a treaty change, even if all the governments could avoid putting it to a referendum, and even before that stage of national approval it would require some clever footwork to limit the involvement of the EU Parliament. However it should be recognised that the ad hoc solution would necessarily involve breaches of the existing treaties, leaving a legal mess to sort out afterwards. On the other hand, if the EU started to publicly discuss making the necessary treaty changes in good time then clearly that would undermine the strategy of pretending that there’s no possibility that any country will need to leave the euro.
April 5, 2012
John whilst I admire your thoughts and ideas, I simply cannot see 27 Countries vote out another, when it owes them money from numerous bailout loans.
They (the EU) seem to think it is all Ok for the private sector lenders to take a hit, but themselves, I am not so sure.
What an absolute nightmare scenario for the population of Europe this so called Club of Nations is.
Where the subscription for membership cost varies.
Where the benefits of membership varies.
Where no one really knows all of the rules.
Where Politicians are giving up control of their own Nations.
Where debt is out of control.
Where is it all going to end ?.
April 5, 2012
Exit countries would have a reason to accept loss of full membership if it provided a means of effective default, eg Greek bonds issued under Greek law could be re-denominated in drachmas. I think its this – and the anticipated hit to the European banking sector – which leads even UK Conservative ministers to oppose a Eurozone break-up.
April 5, 2012
Re “they needed to receive financial grants or loans from the other members to pay their bills”, does “other members” include the UK in your scheme, JR?
Reply No! Eurozone only.
April 6, 2012
I wouldn’t rule out helping a country to leave the euro, which would be in our long term national interests; my strong objection is to helping the EU keep countries in the euro, which is self-evidently against our long term national interests.
April 5, 2012
Other than being an interesting intellectual exercise, why do we care about the who and the how of leaving the Euro?
Reply: Because done badly or not done at all it will do a lot of damage to the wider European economies which will affect our living standards.
April 6, 2012
Wrong in my opinion as Germany could leave.