06 July 2015

Financial Times: Is Grexit legal? EU lawyers try to make it so

(6th July) EU legal scholars have been combing through the treaties to find provisions that would allow for Grexit, arguing they are worried the country could be soon entering a legal limbo that could prevent it from getting financial aid.

If Greece begins printing its own money – which could happen in a matter of weeks if the European Central Bank decides to cut off emergency loans to Greek financial institutions – it may no longer be eligible for aid from the eurozone’s €500bn rescue fund, since it is using a different currency.

But because Greece would still be legally part of the eurozone, it wouldn’t be eligible for the aid scheme reserved for non-EU countries, known as a “balance of payments assistance” programme. Hungary, Romania and pre-euro Latvia all received so-called “BPA” programmes during the crisis.

The traditional assumption is that because there is no explicit way to leave the eurozone, the only clause that comes into play is Article 50 of the Treaty on European Union, which allows for withdrawal from the entire EU. This would require Greece to request a departure, however, which is unlikely, and while there are an increasing number of leaders willing to let Greece leave the eurozone, none want it to leave the EU.

Officials say lawyers are instead looking at Article 7, which was adopted for a very different reason: In the wake of the Austrian government’s decision to include the far-right Freedom Party of nationalist Jörg Haider in a coalition, EU leaders wanted a way to punish countries that did not live up to European values.

Article 7 says the European Commission can propose a country is violating European values, and if all member states agree, the EU can “suspend certain of the rights deriving from the application of the Treaties to the Member State in question”.

Is printing your own money while in the eurozone a clear violation of European values? That might be a tough hurdle to climb. But Article 7 would also allow for suspension from the eurozone rather than complete expulsion, and it would not need Greece’s consent to apply the provision.

The more likely measure, officials say, is a sort of catch-all “flexibility clause” included in the Treaty of the Functioning of the European Union. The provision, Article 352, basically says: if you need to do something that helps the EU on its way, but it’s not in the treaty already, go ahead – but you need to have unanimous consent to do so. 

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