The paper summarising the general case for selected exit of countries
This paper could draw on the arguments presented before on this site. It would summarise why under the present Euro regime certain countries are unable to get their debts and deficits down to anything like the reference levels in good time and good order. It would explain the large trade and commercial imbalances within the zone that are proving difficult to finance. It would remind member states that the original criteria over debt, deficits, inflation and currency ranges were there for a good reason, to improve the chances of currency success. It will be essential to give hope to the unemployed, those with near bankrupt businesses, and those in public sector employment fearing for their jobs owing to the shortfalls in tax revenue, in the badly affected Euro member states.
The meeting may have to deal with the problem that country like Greece may not wish to leave the Euro. Under the Treaty there is no way of enforcing her withdrawal. However, the Treaty permits the status of candidate member whilst a country is preparing to join and trying meet the requirements of the union. As Greece (and Portugal, Spain and others) did not meet the requirements by a long way on entry day, the other member states could jointly request that Greece withdraw to prepare again and to sort her economy out. If appeal to her own interests and reminders that she neither met the requirements nor presented honest figures on entry is insufficient to persuade her, then the Union can simply say they are no longer prepared to finance the Greek state through the special loans the EU and IMF are making available. This should be sufficient for the Greeks to accept they need to follow the EU’s advice.
The Member states would then resolve that Greece had agreed to accept the status of a candidate country and currency under the Treaty, and to act under the derogation from Euro membership, all the time she was unable to meet the debt, deficit and other requirements of the Treaties. A unanimous resolution of all member states with the consent of the exit country should be sufficient.
The paper setting out the legal and administrative steps to be taken to allow exit
The member states need to resolve that they will take all necessary legal measures to ensure the smooth and legal transition of all contracts, assets and liabilities in Euros into the new currency of any exit country according to an approved procedure. I will provide details later of the arguments over which contracts, assets and liabilities should be compulsorily converted and which may stay in Euros. The Heads of Government should be presented with a preferred version, but be able to debate the options. They should be reminded that if the compulsion applies just to people and companies within the jurisdiction of the exit country, the legal and administrative tasks are easier. The exit country needs to prepare and clear rapidly the necessary domestic legislation to regularise the position. If the EU wishes to convert contracts and assets held by other EU citizens outside the exit country, then it needs to resolve accordingly and to commission rapidly the necessary supporting legal texts preferably by directly acting regulations that can enforce these decisions.
The Heads of Government need to give general authority to officials, to the ECB and the other central institutions, to take all appropriate measures to ensure as favourable a reception as possible of the new policy. Heads of Government should understand that the ECB needs to keep the markets liquid whilst this is going on, and needs to offer assurance by word and probably by deed as well that it stands behind the main commercial banks in the exit country until that country’s own Central Bank can and does take over the task.
The press release covering the meeting
Heads of Government, being politicians, are likely to be most interested in what they can say about the new policy when their meeting breaks up and the world is told of their decisions. The draft document might include the following:
“ At a meeting in Brussels over the week-end, the Heads of Government of the European Union have decided that they need to bring to an end unhelpful market speculation and pressures on individual member states within the Euro. They recognised that several member states are now encountering difficulties with raising the money they need to carry on their normal operations, and understand that there are serious trade and financial imbalances within the Euro zone that are proving difficult to sort out. There are limits to how much austerity countries can accept in trying to meet the requirements of the currency zone.
The Heads of Government have therefore decided that it is in the best interests of European harmony and co-operation, and of the Euro itself, if the member states most badly affected by the current configuration of the currency leave the Euro for the time being. XXX will set up their new currencies, the YYY, in time for the markets opening on Monday. The creation of these new national currencies will enable the exit countries to regain competitiveness, dealing with the large imbalances they have on trade and capital account with the rest of the Euro area, and will ease the burden of their debt by the amount of any devaluation the markets think necessary.
This will, in the view of the Heads of Government, leave a strong and united Euro zone with a group of countries whose economies have come closely together and who can live with the tough budgetary and inflation discipline which was always designed to be central characteristics of the single currency. The exit countries become countries with a derogation from belonging to the Euro for all the time their debts, deficits, inflation and interest rates remain outside the Treaty values required for new members. They are free at any time to become members again, but will need to satisfy fully all the criteria. We realise it was a mistake to relax the requirements as much as our predecessors did in their enthusiasm to have so many member states in the original Euro.
The legal basis for these decisions will be this high resolution of the Heads of Government set out below:
“The 27 Heads of Government meeting as the European Council have resolved that xxx are allowed to leave the Euro zone, establishing their own currencies on ddd. These countries become member states with a derogation from belonging to the Euro under Article 139 of the Treaties, and are free to reapply for membership when they meet the criteria laid out.”
More detailed contractual matters affecting people and companies with assets, liabilities and contracts in the exit countries, will be governed by their domestic law. The exit member states will be setting this out at the earliest opportunity. The EU stands ready to pass any regulation or other instrument necessary to give good effect to these necessary decisions stated in the High resolution. “
The timetable is of necessity rapid.
Day 1. Following a decision meeting between the Heads of Government of France, Germany, and the exit countries to approve the necessary work, officials prepare secretly for the next European Council the specified papers.
Day 5. France and Germany review these papers just before the Council, and contact the exit countries by phone conference to sound them out.
Day 6. European Council
Day 7. Announcement of results of Council
Day 7.5 All relevant bank accounts and electronic money in the exit countries is converted to the new currencies. Orders are placed for new notes and coin. Instructions are issued concerning continuing use of Euro notes and coin until new notes and coin are available in sufficient quantity.
Day 8 First trading day. Exit country Parliaments meet to debate and ratify the decisions of their governments . They cannot be given warning, so they will be in the same position as Parliaments were when faced with a devaluation of a domestic currency. Exit country governments publish draft laws to enforce the changes to bank accounts, and set a tight timetable to legislate.
Day 8 and beyond European Central Bank makes clear it is willing to assist Euro area banks with problems arising from bond and currency losses brought about by exits from the single currency. Domestic Central Banks in the exit countries make general statements of their proposed policies for their new currencies and their banking systems. They also make it clear they stand behind their leading banks and are willing to supply substantial liquidity in their new currency.
Day 14 Central banks in exit countries make fuller statements of their intended monetary and banking support policies.
Day 15 Legislation completed in exit country Parliaments and in European Union, to confirm legality of actions taken and to be taken.
Day 22 Most notes and coin replaced by new issue. Successful trading continues in new currencies and in reduced Euro area Euros. Devaluation and revaluation values settle down in markets.
Day 30 Devaluing countries start to present revised national budgets, including measures to promote growth.
Day 50 Signs of stability returning to capital flows. Some people who had successfully taken their money offshore from struggling Euro members start to repatriate money into the new currencies.
Day 100 Improved balance of payments figures start to appear from countries that have devalued.