Steve Peers

The stability of the Economic and Monetary Union (EMU) is once again in question after a period of relative calm. This follows the announcement of early elections in Greece. Should the anti-austerity party, Syriza, gain control of the government, the consequences could be significant.

It is crucial to note that such an outcome is not guaranteed. Syriza holds a small lead in the polls, and even if they become the leading party, they might not secure enough seats to hold a majority. In this scenario, forming a coalition with another party would be necessary.

Furthermore, Syriza’s goals are, at least in theory, relatively limited. Their objective is not to withdraw from the EU or the euro but to renegotiate Greece’s debt and the associated austerity measures. They have consistently aimed to restructure the debt rather than pursue an exit from the EU or EMU, even in past elections.

However, if renegotiations falter, Syriza might resort to more drastic measures. There’s also a possibility that the party’s more radical members could gain influence. Alternatively, some commentators, such as those in a specific Washington Post article, suggest that other Member States, particularly Germany, might compel Greece to abandon the euro.

While political and economic concerns dominate this situation, there are also legal restrictions to consider. Several significant actions taken to safeguard the euro in recent years have been challenged in courts, both national (especially in Germany and Ireland) and the Court of Justice of the European Union (CJEU). Notable examples include the Pringle case concerning the treaty establishing the European Stabilisation Mechanism, and the ongoing Gauweiler case, which focuses on the European Central Bank’s policy of buying government bonds. The Advocate-General’s opinion in the latter case is expected in mid-January, coinciding with the Greek election campaign.

Considering the most extreme outcome, Article 50 TEU grants each Member State the right to leave the EU. However, invoking this provision would be ill-advised unless a Member State truly intends to withdraw. Conversely, it’s impossible to force a Member State’s exit from the EU against its wishes. The strongest action other Member States can take is to suspend membership in cases of “serious and persistent breach” of EU values, particularly human rights and democracy, as outlined in Article 7 TEU.

Regarding EMU withdrawal, the treaties have detailed rules for euro adoption, applicable to all Member States except Denmark and the UK, which have special opt-out protocols. However, there are no explicit rules for a Member State leaving the euro, either voluntarily or under pressure from other Member States. This omission was intentional; the architects of the Maastricht Treaty wanted to ensure the establishment of the monetary union, and explicit exit rules could have undermined its stability from the start. Therefore, legally, Greece cannot be forced out of the single currency, nor can it choose to leave.

History demonstrates that currency unions can dissolve despite legal barriers. Practically speaking, compelling Greece to leave or remain in the EMU against its will is unrealistic, barring an invasion and occupation. How would such a forced exit even be executed? Would drachmas be printed in Frankfurt and airdropped over Greece with the expectation of adoption?

Should Greece choose to abandon the EMU, EU law would require amendments, likely retroactive, to address the situation. Although no specific provisions exist, Article 352 TFEU, the general power to regulate matters not explicitly covered in the treaties, could potentially be employed. This would necessitate a unanimous vote from all Member States. Utilizing the EU’s “enhanced cooperation” rules, where a group of Member States can proceed without the others, would be impossible. These rules are inapplicable to matters under the EU’s exclusive competence, which includes the single currency as part of the exclusive competence over monetary policy. If using Article 352 proves legally unfeasible, either due to successful legal challenges or objections from Member States, amending the treaties would become necessary.

A less drastic outcome involves renegotiating Greece’s debt and austerity obligations. However, legal constraints exist. Article 136(3) TFEU mandates “strict conditionality” for any financial assistance, as confirmed by the CJEU in the Pringle case. The court also clarified in that judgment that the “no-bailout” rule in Article 125 TFEU allows for Member State financial assistance only in the form of loans, not direct assumption of Greek government debt. Furthermore, the ESM Treaty mandates that loans remain payable with appropriate interest in case of non-payment.

Consequently, Member States cannot waive all conditions attached to loans to Greece, forgive debt outright, or provide interest-free loans. However, they could potentially ease the conditions, reduce interest rates, and extend the repayment period. Nonetheless, this carries the risk of legal challenges in national courts or the CJEU, arguing that these actions exceed permissible bounds. Additionally, EU Treaty rules bind only EU institutions and Member States, not private entities, non-EU countries, or international organizations. Therefore, renegotiations or defaults involving such creditors are not directly subject to EU law, though other legal frameworks may apply.

Whether such relatively minor renegotiations would significantly reduce Greece’s debt burden or satisfy voters who supported a Syriza-led government remains to be seen. The impact might be felt more strongly in the long term, should a Podemos-led government take power in Spain or if other bailed-out Member States demand similar renegotiations.

Finally, it’s essential to remember that loan renegotiation isn’t the only option to support Greece. The treaties arguably don’t preclude a (supplementary) unemployment insurance scheme among Eurozone members, as it wouldn’t directly pay off another state’s debts. Admittedly, this would provide indirect financial support by reducing costs that the Member State might otherwise bear. However, the same could be said for lending money at below-market interest rates through the ESM Treaty, which the CJEU deemed compatible with the no-bailout rule. Moreover, the previous Commission had already initiated work on this topic. Such a system could be established within or outside the EU legal framework.

The decision of whether to vote for Syriza rests solely with Greek citizens. EU institutions and other Member States should respect this choice without interference. Should Greeks elect Syriza, responding with threats or forceful rhetoric would be unproductive and unhelpful. Instead, this could be an opportunity to re-engage with the millions of EU citizens concerned about or frustrated with austerity and to steer the EU towards mitigating, rather than intensifying, these measures. While this is undoubtedly challenging, implementing an unemployment insurance system would make economic sense as an automatic stabilizer and carry political weight by demonstrating the EU’s ability to directly aid those affected by the economic downturn.

Barnard & Peers: chapter 19
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