Steve Peers

The recent victory of the anti-austerity party Syriza in the Greek elections raises questions about its potential effects on the EU’s economic and monetary union. Syriza’s objective is not to withdraw from the EU or the single currency but to renegotiate Greece’s debt and austerity measures. Their goal is to secure debt forgiveness and renegotiate terms, including the removal of austerity demands associated with previous bailouts.

However, this program might encounter legal obstacles due to limitations on debt forgiveness and ending austerity outlined in EU Treaties and Court of Justice of the European Union (CJEU) case law. Article 136(3) of the Treaty on the Functioning of the European Union (TFEU) mandates “strict conditionality” for financial aid to eurozone members. This aligns with the CJEU’s judgment in the Pringle case, which clarifies that the “no-bailout” principle in Article 125 TFEU permits member states to provide financial support through loans but not by directly taking over Greek debt. The CJEU emphasizes that non-repayment necessitates continued loan obligations with appropriate interest rates as stipulated in the European Stability Mechanism (ESM) Treaty.

Therefore, member states cannot completely eliminate loan conditions for Greece, forgive debt entirely, or offer interest-free loans. However, they could potentially relax the conditions, lower interest rates, and extend the repayment period. This approach carries the risk of legal challenges arguing that these actions exceed permissible boundaries. It’s worth noting that these EU Treaty rules primarily bind EU institutions and member states, not private entities, non-EU countries, or international bodies. Consequently, renegotiations or defaults involving these actors wouldn’t necessarily fall under EU law, although other legal frameworks might apply. Notably, as highlighted in the Open Europe analysis, the majority of the debt is owed to the Eurozone.

Current case law doesn’t prohibit a brief suspension of principal or interest payments as long as the loans remain payable with interest. It also doesn’t explicitly cover the potential conversion of loans into bonds, a concept proposed by some within Syriza.

Given these legal constraints, it’s unclear if the limited renegotiation permitted under EU law would significantly reduce Greece’s debt burden or fulfill the expectations of Syriza’s electorate.

Beyond loan renegotiation, alternative approaches could be explored. For instance, establishing a supplementary unemployment insurance scheme among Eurozone members or supporting another member state’s social welfare programs might be permissible under the Treaties, provided it doesn’t involve directly settling another state’s debts.

Ultimately, the option of exiting the euro exists, either by Greece’s choice or through the decision of other eurozone members. However, leaving the Eurozone (or forcing a member out) without that state also leaving the EU is not legally permissible. While any member state can choose to leave the EU, expelling one is not legally viable. In reality, the European Central Bank (ECB) possesses significant power as it could effectively compel a member state to abandon the monetary union by halting its money supply. The ECB’s independence prevents political interference in such decisions, but the bank could act independently.

Beyond its questionable legality and potential economic ramifications, such a drastic move would be politically unwise. It could lead to increased support for the far-right, as seen in the rise of the neo-Nazi Golden Dawn party, which secured third place in the elections, rather than bolstering moderate parties that reluctantly supported austerity measures.

Instead, the EU should view this situation as a chance to address the concerns of countless EU citizens impacted by austerity. The EU should prioritize policies that alleviate austerity rather than perpetuate it. While challenging, this shift aligns with the EU’s founding principle of promoting economic growth and raising living standards for all. By supporting a party advocating for these goals, Greek voters have reaffirmed the EU’s core purpose. They serve as a reminder that the EU’s legitimacy hinges on its ability to deliver prosperity rather than simply enforcing austerity.

Barnard & Peers: chapter 19

Cartoon: Economist.com