How should existing contracts be treated when a country leaves the Euro zone?




The Governing law


Changing a currency entails dealings with several  jurisdictions depending on the transaction or agreement.  There are broadly four categories we need to consider. There are agreements and contracts within the country leaving the Euro. There are contracts and agreements between people and companies in the exit country and people and companies elsewhere in the Euro zone. There are agreements and contracts between people or companies in the exit country, and people and companies outside the Euro zone. There are contracts and agreements between people and companies outside the exit country using the Euro for their own purposes.


Contracts and agreements between people and companies within the exit country.


These contracts and agreements can be changed by domestic law in the exit country. If the recommendation is accepted that these should be changed automatically into new currency contracts and agreements, the exit state needs to pass the relevant law making it clear this has to happen.

It would be wise in the new law requiring this to deal with the issue of whether adversely affected parties could appeal to European jurisdiction against the change. The domestic law could include a clause pointing out that the exit country has now become an EU country with a derogation over belonging to the Euro. It could also explicitly suspend appeal on these matters to the ECJ. This could be buttressed by a decision of the EU to say that the EU approves of the decision to convert these contracts into the new currency, making an appeal futile or impossible.


Contracts and agreements between people and companies within the exit country and people and companies within the rest of the EU


This is a more difficult set of cases, if the decision is taken to convert these into the new currency as well. Lenders from other EU countries will lose from devaluation, though borrowers will of course benefit.  Unless express legal action is taken there could be law suits by losers from outside the country complaining about the compulsory conversion of their contract.

If the decision is taken to proceed with compulsory conversion of these contracts it would be wise to change EU law expressly and accordingly. The EU could pass a regulation  denying redress to individuals and corporations who had lost money as  a result of the compulsory switching of their assets to a different currency.


Contracts and agreements between people and companies within the exit country and people and companies from outside the EU


Varying these contracts would be an assertion of extra territorial powers, which might be going too far in the circumstances. The easiest option is to leave these contracts and agreements in Euros, as the Euro survives as a trading currency if one or a few countries leave it.


The EU did of course assert such jurisdiction when it established the Euro. By destroying big trading currencies like the DM and the French franc it forced conversion of contracts and agreements. It got away with it, without a big legal challenge to its chosen course of action.  Were the EU to decide to abandon the Euro and to return all countries to their own currencies, then it would have to take a similar legal risk to the risk it ran when establishing the currency. There would be limited point in people challenging the decision, as the Euro would cease to exist, making enforcement of the Euro contracts impossible.


The decision could be taken to convert all these contracts into new currency. Individual contracts might be exempted, depending on the governing law determining the contract. It would be a matter for individual negotiation and decision in the light of the general policy and the governing law in each case. The author has ascertained that the US might accept such assertion of power over US nationals  if it were endorsed and supported by the IMF.  It is recommended that the EU does not seek to assert jurisdiction on non EU individuals and companies  if presiding over limited exits from the zone.


Contracts and agreements between people and companies outside the exit country in Euros.


In the circumstances where the Euro continues as a main currency, it would be best to leave all these contracts in Euros.  Whilst some of them relate to assets and liabilities within the exit country, neither the EU nor the exit country government have clear powers over the contracting parties. It would seem to be a needless complication to try to assert power to convert against the wishes of one or more of the contracting parties. They might decide to do so for their own reasons, but that can be left to private negotiation.


Contracts between people and companies in countries remaining in the Euro area


There can be a genuine choice of options here. The EU as a whole would have the legal clout to enforce compulsory conversion of contracts into the new currency. There would, however, be no pressing need to do so, as the contracting parties would still be working on most of their other budget matters in Euros and may well have Euro streams of revenue.

There is a case for the compulsory conversion of Euro contracts relating wholly to exit country assets and liabilities into the new currency. There is also a case for leaving it to individual negotiation. For the sake of simplicity  I recommend not seeking compulsory conversion.


  1. ian wragg
    April 12, 2012

    I find it hard to believe it would be so complicated for say Greece to revert to the Drachma.
    When they joined the single currency all contracts, loans and deposits were changed overnight into EU denominated contracts.
    The general public outside the EU wasn’t given any influence on matters. I think the EU elite want us to believe its complicated so we believe the guff about being impossible to leave the union.
    If Greece adopts the Drachma at parity then nature will take its course as it did with the Euro.If memory serves me correct, the Euro lost about 30% of its value in the first year.
    2012 will be very interesting especially now Spain is on the edge of the precipice.

    1. Leslie Singleton
      April 12, 2012

      I agree that the complication is being oversold. One would think that currency changes had never happened before whereas there have been 100’s I think I once read and all over the World. What about the Irish? Did they not go from Sterling to Punt to Euro without the sky falling in? What did they do? Of course you will say there were differences but differences in principle would seem hard to detect.

    2. waramess
      April 12, 2012


  2. Nick
    April 12, 2012

    You’re slowing realizing that it is all about who gets shafted for the mistakes of politicians. After all, no one in Greece, just as no one in the UK (bar people like you) have ever had a vote on any of the issues. You are responsible, we aren’t.

    If you enforce that any contracts are to be paid in Euros, then the other side in Greece, Italy, Ireland, Portugal goes bust. You really screw them over.

    If you let any of the PIIGS redenominate both assets and debts, then you screw over people outside, such as pensioners, people saving for their retirement.

    ie. Your plan screws people who were not responsible for the crimes of people over whom they have no control.

    The simpler plan, the Greek government defaults. No more bailouts. If the Greeks suffer hardship, then we resort to charity. Ah, but you’re going to tax people giving to charity.

    Why is that now? Ah yes, you, just like the Greek government can’t control your spending, and are desperate for money, any money, and that includes charity money. We can’t have people bypassing forced charity can we? You need your cut.

    1. waramess
      April 12, 2012

      And this gets pretty much to the heart of the matter. Meltdown will happen when governments can no longer borrow and when increases in rates of taxation result in smaller tax revenues. Then there will be no options left other than to reduce the size of government.

      1. APL
        April 13, 2012

        waramess: “Then there will be no options left other than to reduce the size of government.”

        Better to have done it two years ago and perhaps be looking forward to something of a recovery now, than try what Cameron has tried: to buy with QE a recovery that can at best only mask the fact that the underlying economy is getting worse and largely getting worse because of the two things the government refuse to address. QE and excessive government spending.

  3. Nationalist
    April 12, 2012

    One could also consider a country in trouble issuing a new currency in parallel to the euro. A bit like “company script” this new currency would have notional parity with the euro but in practice trade at a discount. Eg Greece could issue a New Drachma with notes the same size and approximate design as the euro, and coins that were metallurgically the same so they fitted in vending machines. ND would be put into circulation by paying state employees 50/50 in euros and NDs – or some other ratio.

    The ND could have progressive legal tender. Phase one – accepted for payment for some government services; Phase two – accepted at parity with euro for payment of local taxes; eventually – accepted at parity for payment of national taxes. Use of the ND for settlement of debts could also be progressive. Mortgages with state-owned banks could be moved eventually. And maturing gilts could be redeemed in the current currency (probably involving less of a haircut than the current scheme.)

    Obviously this would be “bad” money, and it would drive out the good. I think though it would trade very close to the euro because of its acceptability for settling euro-denominated debts owed to the public sector and the expectation of ever greater utility – ie, it being possible to spend the ND in the future in ways not possible at the present.

    The idea would be to have a low-stress gradual migration back to a national currency.

  4. oldtimer
    April 12, 2012

    Thank you for your dissection of the many issues that the EUrocracy needs to consider in an age of default by one or more of its members. No wonder their preferred option is to keep kicking the can down the road.

  5. alan jutson
    April 12, 2012


    Many thanks for your series of posts on the EU.

    It is clear that you have thought long and hard with regard to all things EU before offering your potential solutions.

    I cannot belive there are many other Mp’s with such knowledge or interest, and there in is the problem.
    Until many more MP’s take a real interest in the EU, what it stands for, where it wants to go, and how it intends to get there, we will be stuck with it.

    Keep up the good work.

    1. Mike Stallard
      April 12, 2012

      You don’t have a “Like” button.
      Otherwise, I would press it for this comment.

  6. javelin
    April 12, 2012

    It looks like the contagion has now reached Germany – Germany only managed to raise €3.87bn of the €5bn it hoped for on 10-year bonds, at a yield of 1.77 per cent, as investors were reluctant to bid for such a low return.

    So Germany is not seen as a “safe” haven any more? Well not quite the yield was low and the ECB LTRO has meant better yields for 3 years. Even so Germany would be seen as a safe long term safe haven but its not. This of course is due to the guarantees its banks, Government and ultimately taxpayers is making for the PIIGS. Of course Italy and Spain.

    The EZ is running out of road to kick the can down.

  7. javelin
    April 12, 2012

    What’s clear is the lawyers will be raking it in !!!!

  8. A Different Simon
    April 12, 2012

    One thing needs to be made clear .

    Most countries in Europe have been enrolled in the “European Project” without first the consent of their citizens being obtained .

    Any company which does business with Mugabe’s Zimbabwe or any other country or body which lacks legitimacy or legislative stability does so at it’s own risk .

    Companies should not be entitled to compensation from public funds or export guarantee schemes for any losses incurred by the break up of the EU – the political risk is theirs and the decision to insure against it is theirs too .

    1. uanime5
      April 13, 2012

      “Most countries in Europe have been enrolled in the “European Project” without first the consent of their citizens being obtained .”

      Given that these citizens don’t elect leaders or MEPs who intend to leave the “European Project” it can be assumed that most do support this.

  9. Acorn
    April 12, 2012

    Thanks for answering my question on your summary proposal for the Euro. Now we just need you to become EU Commissioner for Economic and Monetary Affairs. I think Olli Rehn needs a long holiday.

    Will the last member state leaving the Euro, please turn off the money printing press. (etc)

  10. lifelogic
    April 12, 2012

    Oh what a mess the EU has weaved.

    Off topic I see Osborne has another ÂŁ1billion to, morally repugnantly, waste on the Carbon capture nonsense. What better way to show just how highly moral tax avoidance usually is.

    1. A Different Simon
      April 12, 2012

      …. yet still no green light from the Govt and Decc on resumption of hydraulic fracturing of shale wells .

      The problems for the Govt are that shale would :-
      – create hundreds of thousands of direct and indirect real jobs as it has in US
      – reinvigorate manufacturing
      – introduce unwanted competition into energy and reduce price for the consumer
      – remove the excuses for high energy prices which in turn make renewables look viable .

      The Govt have taken 7 months so far to consider the siesmicity report which resumption of hydraulic fracturing is waiting on .

      The shale revolution has been driven by small independents , not majors . They will not burn money on even drilling vertical exloration wells until they know that the Govt is serious and is not just going to can UK shale .

      1. A Different Simon
        April 12, 2012

        Edit ,

        ooh and “blow our carbon budget”

      2. Bazman
        April 12, 2012

        As well as the environmental concerns shale gas can be very expensive to extract and forecasts are often made on ‘potential.’ Gas prices are volatile this method can become unprofitable. Some insiders say this is another Enron.
        There could be some examples where this could be useful like any other energy source, but it is not you paranoid fantasy of the state preventing cheap energy for the masses.

  11. David Langley
    April 12, 2012

    As an ex owner of a business that had to invoice Spain in the EU language containing enough EU codes and gobbledygook to fill a book, I still had to wait eons to get paid. I suspect that eons will now go to eternity with the excuses that will accompany the above new deal unless the simple options outlined by some bloggers above are used.
    I suspect some heavy supplementary invoices will follow attempting to recover value from the sales. Good luck all.

  12. Neil Craig
    April 12, 2012

    What it boils down to is that if you give up the prinicple of international legal soverignty you have walked into a net &* risk it will drag you down.

  13. Mike Stallard
    April 12, 2012

    I am not affected by this and I do not really understand it.

    But I want to say how exciting all these posts are because you are facing up to the inevitable day when the EU breaks apart. You should be proud: nobody else is.

  14. Anoneumouse
    April 12, 2012

    Force majeure

  15. Leslie Singleton
    April 12, 2012

    Trying to be supportive (You are all we’ve got!!) I have been struggling to get my head around this need for (too much?) complication. It seems to me that the complication gets dissected in terms of what has to be done, but with little explanation why it is necessary in the first place. The best I can come up with on one factor at least is that it is presumably unusual for the prospective change to be (as all agree it would be in the case of Greece) from a stronger to a (much) weaker currency, the effect of which being that one cannot sensibly just let contracts denominated in Euros run their course (as I for one would otherwise suppose “ought” to happen), because come maturity an Income Stream in depreciated Drachma couldn’t be expected to fund via F/X the required maturing Euros. (And given that the Drachma’s slide would be essentially immediate and in any event anticipated, a Forward Deal would not help.) When the Irish changed from Sterling to Punt, my memory is that nobody expected (nor was it the case) that the Punt would quickly collapse, meaning that it was not unreasonable for contracts denominated in Sterling simply to be allowed to run their course. I may (very easily!) be wrong but I do not remember any of this compulsory 1:1 exchange conversion business in Eire at the time. Is this the guts of the need for complication? If it is, maybe there is a completely different approach with the EU keeping the Drachma strong for a defined period (Yes I appreciate the whole point longer term is to get the Drachna down!).

    reply: The whole point of a new currency is to shift many of the assets and liabilities into it. The Irish faced compulsory conversion of pounds to punts, just as the Greeks would face compulsory conversion to drachmas. The argument is over how many others face this compulsion. When they set up the Euro all holders of DM were forcefully converted into Euro because the DM was abolished.

    1. Leslie Singleton
      April 12, 2012

      Cannot see any analogy with the DM (per last sentence of your reply), rather the opposite because the Euro will be with us for some time yet on any basis. Understand shifting assets but would not need to do it so quickly (over the weekend and all that) if much less of what you call “compulsion” applied or in other words if Drachma and Euro could cohabit. I believe you when you say the Irish were compelled but still cannot see why. After compulsion of Euro to Drachma are Greeks to be allowed to contract in Euro if they want, just as we in UK can contract in dollars if we want. What is the difference?

      Reply: it is about taking the losses and cutting the values and costs in the devaluing country, so they need to be made to accept the new currency.

    2. alan jutson
      April 13, 2012


      The solution seems to me, if you are selling to an EU country which you feel may change from the Euro to their own future currancy, is to agree payment in your own Countries denominated money at the outset, and make that a term and condition of the contract.

      ie Sterling for us, Dollars for perhaps some others.

  16. Credible
    April 12, 2012


    Commentary after commentary after commentary about Europe. It is very important of course, but I hope it’s not distracting you too much from your job as my local MP.

    Reply: Not at all. I am producing these whilst Parliament is yet again on vacation, and making local visits at the same time. My job as an MP is to represent my conbstituents on national and international issues. Councillors deal with schools, roads, bins, planning and other important local issues, and do not appreciate an MP telling them, what to do.

    1. Credible
      April 12, 2012

      Thanks, I feel reasured now.

  17. Denis Cooper
    April 12, 2012

    I think the position is clear for the first category

    “Contracts and agreements between people and companies within the exit country”

    unless those contracts have been written under foreign law.

    I think that assuming the continued existence of the euro, with just one or some countries leaving it, the position for the last category

    “Contracts and agreements between people and companies outside the exit country in Euros”

    is also clear – basically no action would be needed.

    But for the two other categories:

    “Contracts and agreements between people and companies within the exit country and people and companies within the rest of the EU”


    “Contracts and agreements between people and companies within the exit country and people and companies from outside the EU”

    and also for any internal contracts written under foreign law, I think it may be necessary for the government of the exit country to interpose itself between the people and companies within the exit country and their foreign creditors, in order to protect those people and companies from interminable demands and threats and lawsuits and allow them to get on with rebuilding the economy.

    I guess that it might be better for the government of the exit country to work through the EU to deal with creditors outside the EU, but somehow there would have to be negotiated “clean break” settlements between the government of the exit country and governments around the world, both inside and outside the EU, under which they would use their domestic law to stop creditors within their jurisdictions demanding that their original contracts must be fulfilled.

    It may well be that those settlements would involve the government of the exit country paying some agreed level of compensation to other governments for any costs they incurred in dealing with the consequences of its exit from the euro and the necessary default on debts, but a relatively low level of compensation spread over a period of many decades.

  18. Bazman
    April 12, 2012

    It must have come as terrible blow to many right wingers to find Strasbourg says that Abu Hamza can be extradited to the US and this does not breach his human rights?

    1. alan jutson
      April 13, 2012


      Certainly not a blow, but I must say a bit of a surprise, but then we have the appeal process to go through yet.

      Quite why we have to have such cases go out of the Country to be decided, I still find all rather a nonesense, but then I am not a full blown rightwinger.

      I used to play inside forward or half back, or perhaps should I say in todays language, an attacking midfielder. (now showing my age).

  19. David Ford
    April 12, 2012

    I’m sorry John, I respect your views……..but you keep going on about this and nothing’s going to change in the short or mid term. While you’re obsessing about Europe your government is going about undermining charitable giving for the sake of a few tabloid headlines, shame on you and your party.

    Reply: I was one of the first to point out that the charitable giving policy was at odds with the Big Society on this site, and have called for the tax changes to be altered. I have taken this up several times with colleagues.
    If you look at 8th April post I commented on charitable giving. The previous week I wrote a whole series on tax, a topic that usually heads the list of issues my constituents raise with me.

    1. Susan
      April 13, 2012

      What is this Big Society anyway, because no one I have come across knows what it means. Even David Cameron seems to struggle to define it. If it means rolling back the state, it is not working because we have had yet more Government intervention into our lives under this administration. There used to be a big society of sorts, where retired people, who were fit and well, gave up their time to do voluntary work. That has mostly gone because of all sorts of regulations and people have to work much longer because the pension system in the UK has been ruined.

      Perhaps if Government were to give some of our freedoms back and stopped meddling into every corner of our lives, we would feel able to create our own Big Society.

  20. javelin
    April 13, 2012

    Interesting to note the latest Greek Labour figures

    Shockingly in the past 4 years unemployment has risen 300% !! ( from Jan 2008 7.8% to Jan 2012 21.8% ), AND it shows NO sign of slowing down – the graph for the past 2 years shows a straight line upwards !!!

    Amongst 15-24 year olds its 50.8%.

    Even worse (if that’s possible) the number of employed has dropped to 3,850,000. In a country of 11.5 million that means ONLY 33% of the population are working !!!

    I cannot see how any country can sustain a debt of 160% (and growing). If you have any doubt that Greece needs to either default or be bailed out like Eastern Germany then please thow those doubts down the toilet and keep flushing !!!

    … on second thoughts I see a military coup, and EU exit, as being by FAR the most likely option.

    1. uanime5
      April 13, 2012

      Given that the UK has 60 million people and only 30 million are in work this means only 50% of the population is working.

      A coup and leaving the EU will make everything worse because Greece will lose its main trade partners and it will reduce the amount of foreign investment; both of which Greece needs to restart their economy.

  21. sm
    April 13, 2012

    Asset & Liabilities

    Someone will benefit someone will lose?

    Why not work to an national,euro,international plan to mitigate by taxing the net gains at 100%, paying them into a national fund, euro fund,IMF fund which could then be used to cushion the net losers in the respective areas.

    It would be nice to see that speculation is not allowed to destabilze an already dangerous situation. Would that not be preferable or would those making a killing in these manipulated markets be allowed to retain the rewards?

    Contracts and paper may turn out to be worth exactly the recycle value of paper.

  22. javelin
    April 13, 2012

    With the holiday well behind me, today I’m looking at the Spanish ECB loans for March – which came in at 75 billion …

    … conincidentally the same as the 75 billion lent to Italian banks, announced on Friday …

    … now either the Spanish and Italian banks are running parallel economies or the ECB is limiting borrowing to 75 billion to each Government. The realisation is that both the Spanish and Italian bank sector are (financially weak-ed) and being propped up by the ECB. Neither economy is going to improve for a least two years – according to both countries Governments. Things will only get worse. As CDS spreads today are only a few basis points off record highs for Spanish banks.

    The realisation in the markets is that Spain and Italian banks – and hence the Europe project – is past its tipping points, and will remain so for at least two years. With the LTRO loans now fading and an LTRO3 being very unlikely, as it has been shown to have failed – we are finally left with the blunt instrument of money printing. I presume so as not to upset Germany the money will be printed and put straight into a rescue fund, or some other weasly way of inflating Europe out of trouble.

    Reply: Not all Italian and Spanish banks are weak or in need of propping up.

  23. Freeborn John
    April 13, 2012

    I think you should ‘eurozone’ here where you have used EU. The difference has profound consequences for the UK. Sterling currently floats against the euro and should float against the new currency of a country exiting the eurozone and the rump eurozone. There is no need for ‘EU legislation’ to forceably devalue contracts between Uk citizens and entities in a country exiting the euro as there might be between citizens of two current eurozone states one of which is exiting the euro and the other remaining in it.

  24. Anne Palmer
    April 13, 2012

    As our Prime Minister has in his term of Office mostly implemented EU legislation, namely the Localism Act, and has gone ahead with the destruction of the NHS, is the latter in preparation for joining the Euro-to save the Euro? Even his desire for the HS2, is part of the EU’s TEN-T, which also requires this Country to hand over sovereignty over our Air space for the EU’s Single European Sky, and give sovereignty over our Ports and 12 mile limit-forever- for the EU’s Motorway in the Sea.

    So, did, Energy Secretary Ed Davey let the cat out of the bag through his claim that it would be “reckless” to rule out joining the single currency in the next few years?
    The Times (In 2003), which reported that if (and we may not have that option of “if” one day) we join the Euro, the European Central Bank had warned Britain it might have to give up its National Health Service. Even the Bolton Evening News, May 2003 reported that, “Britain would be forced to scrap the NHS if we joined the euro, so warns the ECB, saying free health care could be slashed to just emergency services”.

    Also, “The ECB recommends jettisoning the NHS in favour of private health care, saying Britain’s aging population will send NHS costs soaring, and euro-zone rules would not allow Gordon Brown to borrow necessary funds to foot the bill”. Does Britain have an aging population more so than any other country? Was Ed Davey right?

  25. Nigel
    April 16, 2012

    It might be easier and more satisfactory if the stronger Euro countries (Germany Holland etc.) were to leave the Euro group and revert to the DMark. The DMark would then float and probably revalue, and the Euro, which would include the Southern European Countries, could be allowed to devalue and allow those countries to become more competitive.

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