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
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.
April 7, 2012
It must be so frustrating to be you! What a sensible, utterly practical and actually humane post this is.
And we both know that the Eurocats and the Sir Humphreys will not even bother to read it, secure as they are behind their meetings called to discuss economic prosperity.
Never mind – do have a very Happy Easter. And thanks for telling it like it is – and most certainly ought to be. (Your thoughts are like little seeds – one day they will take over the garden.)
Reply: Thanks for that. At least I helped win the argument to keep the UK out of the Euro. I am now trying to find a way to ease countries out of the Euro that are suffering very badly. Sometimes the EU establishment is forced to do the right thing by circumstance, markets or democratic pressures.
April 7, 2012
Hear, Hear!
April 7, 2012
John
Your proposed timetable assumes all Country’s agree on day 1.
Your timetable assumes that the EU can enforce their majority agreed policy, on any Country not in agreement with that policy !
I simply do not see this happening as you outline at all, but then what do I know, this is way above my pay scale.
I do think any huge change could well be the product, and result, of massive civil unrest and protest, but I hope that never happens.
Far better for the politicians of the Country’s involved/with problems, to realise what their problem is, and attempt (if allowed) to take corrective action themselves.
April 7, 2012
Alan, I enjoy reading your comments and I do not want to be pedantic but country is not a proper noun and the plural is countries.
April 7, 2012
Epigenes
Have given myself 100 lines, and a must do better, as I got it wrong more than once in this post !!!
April 7, 2012
I think if the German government ever said “We’ve come to the end of the road with bailouts for X to keep it in the euro” then no other eurozone government would want to carry on bailing out X without Germany and the government of X would have a stark choice: insist on staying in the euro and face inevitable and catastrophic state bankruptcy, or agree to leave and get help doing that. There have already been times when it seemed Merkel was close to saying that about Greece, although of course it could been no more than sabre-rattling to get the Greeks into line. Previously the Greek politicians could respond by hinting that pushed too far they’d be willing to take the rest of the eurozone down with them, but that threat has lost some of its force as time has passed and preparations have been made to contain the damage.
April 7, 2012
Mr Redwood, you state the following, which to my mind places you beyond the pale as a representative or spokesperson for those of us who see the objective of the EU as being to destroy its founding nation states together with all democratic representation for their citizens or subjects:
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 collapse of the Euro Currency is a necessary prerequisite for the restoration of democracy or proper representative government within Europe, those aiding or bending the efforts to saving the euro, while avoiding potential short term economic discomfit are in fact advancing tyranny? I fear you have demonstrated your true colours and finally that of the supposed members of the EU-critical wing of the Conservative Party.
reply: Don’t be so silly – I drafted a piece for the EU to put out – that is not my view. I am against the Euro and European moves to a superstate, always have been and always will be. However, I wish to influence those that want a more integrated EU, so I draft for them in their language!
April 7, 2012
It’s all very sensible, and would be a good way to start a genuine Europe-wide recovery.
The difficult part is not in working out the timetable, but in persuading those who are at the top of the EU pyramid that they should actually do it. Unfortunately they are either elected politicians (who believe that they are infallible) or Eurocrats who do not have to answer to any electorate.
April 7, 2012
The time scale is unrealistic it all has to happen over a weekend in any event a receipt for disaster. Many banks will have to be recapitalised throughout Europe causing greater deficits in Germany, France and the UK forcing France out of the euro as well. Even the ECB will be in theory bankrupt. The situation is far too fragile for any decoupling from the euro except possibly Greece and that is fraught with danger as it may cause contagion and spread to other countries. Unfortunately for the sake of all European economies it has to be hoped that the current strategy of containment through austerity measures, ECB lending and stability mechanisms like the ESM will work long enough for growth to return and internal devaluations to have an impact. Even if the euro is saved there is the problem that bubbles in bonds, stocks and property (still overpriced and being kept there by QE, etc and low interest rates) will burst and cause yet another crisis.
Reply: I think you underestimate the huge tensions in the southern economies, which is causing mass unemployment and misery.
April 7, 2012
Having warmed up on how to leave the Euro, let us now turn to something far more interesting and relevant – how to leave the EU.
Reply: That’s easy – elect a Parliament which votes for a referendum and then let the people decide.
April 7, 2012
It is preposterous that it is”easy” to leave both the EU and presumably the Euro with it but (per the patently indequate Treaties) putatively impossible to leave the Euro whilst staying in the EU–the more so given that of course there are countries already in the ‘EU Yes’, ‘Euro No’ box.
April 7, 2012
Re reply: then we all know who to vote for.
I take it as read that such a parliament would also promote the case for leaving.
But a referendum of itself is not the same as leaving the EU.
What is far more interesting are the actions government should take prior to calling the referendum so that faced with a result in favour of leaving it knows what to do. Leaving is no good unless something better has been organised.
April 7, 2012
Thanks for all your characteristically painstaking work on this. All MPs should be producing such material on their specialist subjects. The job isn’t just about appearing in the local paper; there’s work too and that can include writing and publishing – something the web makes quick and cheap.
Of course, the euro-application-process includes candidate-status. However, the normal interpretation of such a status is that it’s preparatory to becoming a full member. You can’t go from being a member to a candidate again. I doubt the treaties have a provision for such a reverse-move and the common understanding of candidacy is that it’s preliminary to something else, not a consequence of it.
It’s said: “A unanimous resolution of all member states with the consent of the exit country should be sufficient.” However, we’re surely talking about a move which effectively amends at least one EU-treaty. Though no defender of that union, it makes a mockery of the solemn nature of such international undertakings. The so-called resolution might amount to a new treaty and, if proposed, needs to be taken appropriately seriously – including referendums in countries which do that and checks by constitutional courts. Also, it’d need Greece’s OK and their politicians must worry about what their electors will do when their euro-denominated debt suddenly needs to be paid-back in horribly devalued drachmas.
Almost everyone (Europhile and -phobe) wants to see the euro-crisis resolved, even if we despise the whole ghastly project and the craven body which spawned it. I could have got it all wrong here, but would Euro-lawyers agree that a treaty-tweak and a crafty reverse-move were constitutional?
What we certainly have is Lisbon’s article 50. I can’t think why the framers included it, but it’s there. Greece may not want to invoke that clause because it fears isolation (though if the Greeks but knew what economic regeneration true independence could bring!).
Article 50 can, however, be used in other ways. It can be used by economically and fiscally strong countries to threaten the dodgy, profligate ones. It’s like the kid in the playground who owns the football. He can stop the game any time he likes, including when his side is losing. Finland, Germany, Luxembourg and the Netherlands are apparently the eurozone’s remaining AAA-holders. Rather than expecting Greece to leave the union, they can. EFTA (led by AAA-rated Norway and Switzerland) might welcome them.
April 7, 2012
Germany leaving the EU is far less likely to happen than Greece leaving the euro.
Even though Article 50 lays down a procedure for a country to leave the EU in an orderly fashion, but the EU treaties provide no procedure for a country to leave the euro while staying in the EU.
This is courtesy of the German Embassy – it might naively assumed that the creation of the European Stability Mechanism is a pragmatic measure to help ensure economic stability, but, no, for the German government it has a much higher purpose than the merely economic:
http://www.london.diplo.de/Vertretung/london/en/03/__Political__News/03/Euro.html
“A milestone in European integration”
“On 29 March, Members of the German Bundestag held a first reading to consider the bills on the European Stability Mechanism (ESM) and the European fiscal compact. In his contribution, Foreign Minister Westerwelle identified “more Europe” as the answer to the crisis and pledged that the Government was seeking to achieve budgetary discipline and growth in Europe. What the Bundestag was deliberating, he said, was a “milestone on the road to greater European integration”.”
All the more reason for the UK Parliament to prevent the UK government ratifying the EU treaty change to provide a legal base in the EU treaties for Germany and the other eurozone states to have their ESM treaty, which Parliament could do by refusing to pass the Bill to approve it.
April 8, 2012
Missed for moderation.
April 7, 2012
All the above is based on an assumption that Greece, Spain et al will not be able to solve their own financial problems and that the EU suddenly stop using the EFSF/IMF to support these countries. The political will to keep all member states in the EU is very powerful. There would have to be an enormous catastrophe for the above paper to be implemented, maybe a domino effect starting with Greece. In 60 years there has been no such event apart from maybe the ERM crisis which affected the UK. The candidite country approach seems eminently reasonable and if implemented would probably be a solution to countries leaving the euro, which obviously we would all like to see, but I predict that come the next election everything will be exactly the same as it is now, in fact more countries will have joined the union. Finally ( I know it’s not quite relevant) there have been a number of events recently i.e hosepipe bans, stamp prices and pastiegate all ultimately caused by EU directives. Why can’t the present government be straight with the British people and inform us that these events were caused by the EU? Why should we have to find these things out by relying on investigative journalism to discover this information. Why is the government being so secretive about it?
April 7, 2012
“Finally ( I know it’s not quite relevant) there have been a number of events recently i.e hosepipe bans, stamp prices and pastiegate all ultimately caused by EU directives.”
You shouldn’t believe all the Europhobic nonsense. There are hosepipe bans because the water companies lose 30% of their water through poor quality pipes, didn’t build enough reservoirs, and we’ve had several dry winters.
Stamp prices are rising because people are using the post less, so prices need to rise to ensure the same amount of money is raised.
If the EU required the UK to put a tax on hot food it wouldn’t have been implemented in such a haphazard way.Pastiegate occurred because someone noticed that the Government only taxed some hot foods, such as chicken from a chip shop, but not other types of hot food, such as rotary chicken from a supermarket.
In conclusion stop blaming the EU for the Government’s shortcomings. If the Government had a scapegoat for all their problems they would be using it.
April 7, 2012
The biggest obstacle to your interesting and thoughtful action plan is that the masters of the EU and all those politicians involved with bending the rules to allow nations like Greece to join the Euro in the first place would have to admit that back then they acted dishonestly and got it horribly wrong.
It would also show that they were willing to sacrifice the well-being of nations and their peoples, regardless of cost to them and their quality of life, on the altar of trying to create, for want of a better description, the United States of the EU. Can’t see that happening any day soon….
April 7, 2012
I cannot see Germany or France allowing any country to leave the Eurozone, they have far to much at stake moneywise. They will protect themselves and won’t bother about the Southern states suffering at all, that will be last on their minds; in fact their antics todate they are doing just that.
As for the UK, we have been consistantly denied the democratic right to decide for ourselves and this cannot continue; many are now realising this and will vote for UKIP come the next election. The Conservatives are shooting themselves in the foot by their insistance they can do little being in a coalition, they are the leading party so can do more. Clegg is holding them to ransome on many issues, the EU being the main one. Well I say call is bluff and give us a referendum, even he cannot argue with that. Argue he won’t, with his real ratings in the polls, below 5%, and that’s far to much. What we need is a Conservative party, and a leader, who will keep his promises, and demonstrate democracy by the above, until we have that he Conservatives will slowly decline. Whatever the EU does we should just ignore them, we don’t want them and want out. That’s plain to see why is it MPs don’t get it.
April 7, 2012
It must be so frustrating to be you! What a sensible, utterly practical and actually humane post this is.
===========
Is it? You have to look and identify who is being robbed. Who are the losers in this process, how much do they loses, and what impact that has.
It’s far from humane, since most losers at the end of the day will be current and future pensioners who have been prudent and saved, unlike the corrupt governments.
Where is the prosecution and Bernie Maddoff sentences for fraud? Why isn’t it in the proposal that the entire governments at the time get life sentences for the damages they have inflicted?
April 7, 2012
Any sensible Greek has already moved their money to offshore tax havens like the UK, Germany and the US.
Devalue and they make large FX gains.
Will they repatriate the cash?
If they do, what do they do?
Will they pay tax on it to a fraudulent government? Not if sensible.
April 7, 2012
Nick,
There are always winners and losers from currency devaluation. Even with the strictest exchange controls, those with money to invest can always buy shares in companies whose income is all in foreign currencies, such as Rio Tinto or any upstream oil group.
And devaluation does not mean that “the pound in your pocket or purse” is devalued, well not by quite as much anyway.
April 7, 2012
The objection isn’t to the devaluation but rather that the wealthy and those with connections to the Government can move their money offshore before the devaluation to avoid suffering any loss while everyone else losses their money.
April 7, 2012
Fair enough. So do you think that the people as a whole should deny themselves the benefits of devaluation ( in the circumstances outlined by Mr Redwood) because a few wealthy people will avoid the accompanying pain?
April 7, 2012
John, I have a lot of time for you but fail to understand why you continue to support a party that is rabidly pro EU.
The Tory party is finished under Cameron as is his wish. He will destroy you and the party will have to split. Unless and until this happens, Britain will continue to be sucked further down the whirpool of Europe.
April 7, 2012
Ian,
You do have to approach the problem of the EU in a reasonable manner. Why would anyone want to see the Conservative Party split up. What would anyone gain from this. If this split occurred it would be even less likely that the UK would leave the EU, because the Conservatives would lose the next Election and the even more pro EU party, the Labour party would come to Government. I just do not understand why people say these things without thinking it through.
I admit this Coalition is not what I want and its performance is pretty grim, however I don’t know about you but 13 years of Labour, who caused this financial mess in the first place, was more than enough for me.
Remember it was not the EU who spent all the money during the boom years, it was Labour and Gordon Brown.
April 7, 2012
Something like your proposed “legal cover”:
“The 27 Heads of Government meeting as the European Council have resolved … ”
would probably be good enough.
In reality it would be massively illegal under the present EU treaties; but international news agencies like Reuters tend not to inquire too deeply into such matters but instead produce reports on the general assumption that if the EU leaders agree to do something then it must be legal for them to do it; and the newspapers and broadcasters could do what they often do, which is to copy and paste from the news agency articles.
Almost all of the national parliamentarians across the EU would follow the lead given by their governments, and play along with it all being in order; later they could approve the retrospective treaty changes needed to put it in order.
There’d be a few dissident voices, mainly on the internet rather in the MSM where there might be just the odd article saying that perhaps some of it was “technically against the rules”; some academic lawyers might come up with detailed and complex analyses of the multiple illegalities, and some parliamentarians might discuss it in obscure committees or make speeches about it to virtually empty chambers, but little of that would get out to the wider public.
April 7, 2012
Yes indeed, Dennis.
Why would anyone in the UK want to be party to an organisation like that when there is a better option available to us for the taking?
April 7, 2012
While your idea has some good points the main problems will be what should be converted into the new currency. Here are some examples of problems that can occur.
1) Debts. If a country’s debts remain in the old currency and the new currency devalues then the debts will increase in real terms. This will make it more difficult for a country to pay its debts and more expensive to borrow money.
So if EU country A owes EU country B a large amount of money then B is unlikely to approve of A devaluing and being unable to pay back their debts. B is even less likely to approve of the debt converted into the new currency in case A tries to inflate their debt away.
2) Off-shoring. Before the new currency is implemented people move their assets into another EU country. As the new currency devalues these people become richer in real terms because their euros are worth more of the new currency. This is likely to annoy anyone who was not able to move their assets.
The ability to off-shore is very open to abuse because a Government may warn their main donors that they’re about to introduce a new currency. Expect very negative public reactions if this happens.
In conclusion while the Government of one country may want to leave the euro this may be blocked by other EU countries that will lose large amounts of money or the public who don’t want to suffer because of devaluation. Trying to find a fair way to resolve these problems will not be easy.
April 7, 2012
John this is not a post I feel I can add to except by saying thank you for your dedication to developing understanding of possible ways forward regarding this issue.
April 8, 2012
Great plan John, now lets have the detailed execution. I am a little concerned about the weak morale showed by some of the contributors who seem to be of the “Don’t stick your head above the Parapet, you might get shot” variety.
There is going to be tears and probably some bloodshed along the way, but set against the future if this derogation is not achieved for some countries it will be nothing.
For the ones who want to go the whole hog and just depart the EU Project I understand and sympathise but we need to set the hare running first then the dogs can follow. Lets show the EU Elite what real democracy tastes like, we will soon hear the lickspittles yelling about legality, but I think Equality and Fraternity comes first, and a big lesson has been learned by the Inflicted Eurozone membership, their gratitude and the health of their nations will come.
What do we need to get this thing going John?
April 8, 2012
Well I suppose the euro project was always about politics (prejudiced by their nature since you never actually listen to economists just take the bits you like and ignore the bits you don’t like), so perhaps a political paper like this is appropriate.
Just please steer clear of the economics John, because you’ve not shown yourself on this site to be particularly adept at the nuances of macroeconomics, where generally a correlation (US recovery, US supposedly austerity (even that bit’s debatable!)) does not suffice as a causal chain.
I’d be utterly delighted to contribute to such a paper – it would give it some of the balance that an academic economist contribution can provide and a eurosceptic politician cannot, and it would give it a bit more of the economic rigour it needs to defend itself against anyone but the converted (i.e. most of your readers and contributors on this site).
I’m not holding my breath waiting for your invitation however.
Oh and to those who will tar me with the lefty brush after this, please do just read back over my posts on the roads as an example, and be aware I’ve contributed to Conservative Future Policy Fora in my attempt to try and encourage you conservatives to actually use economics properly rather than picking and choosing the bits that you like (and I’d happily do the same for lefties who are just as bad).
Reply: Please send in what you like. I will write my own papers, and you write yours, and let’s see whose has most influence.
April 9, 2012
Haha I think we know whose will have the most influence John, but that doesn’t mean they are correct, accurate, unbiased or unprejudiced.
I’ll be utterly delighted to send you an analysis of the eurozone situation and I’d be even more delighted if you actually gave the slightest indication that you might actually take on board the analysis (which likely isn’t going to give a clear unequivocal answer either way – unhelpful for politicians usually, but that’s the nature of complicated beasts like macroeconomies).