How to leave the euro

For a country to leave the currency, it would first have to suspend democracy

by Wolfgang Munchau / April 25, 2012 / Leave a comment

A replica of the last edition of the drachma in central Athens—but could the currency make a comeback if Greece leaves the euro?

How do you get out of the eurozone? Leaving a monetary union is about the messiest thing that a country can do, short of entering into a war. But what if you have to leave the eurozone? Greece might soon be in that situation—so too Portugal.

Assume that something goes wrong in Greece. Perhaps Lucas Papademos cannot hold his quarrelling coalition together. Perhaps Greece will not be able, or willing, to comply with the austerity demands of the International Monetary Fund and the European Union. Perhaps Greece and the banks cannot agree a deal to restructure the debt. Countless other things may happen: an outbreak of violence, the murder of a foreign diplomat—the kind of event that used to trigger a war, and that would now trigger an exit from the euro. What then?

First, it is legally not supposed to happen. The euro is the currency of the EU. Just as Scotland cannot break out of the pound, Greece cannot break out of the euro. Britain has an opt-out, and so does Denmark, but for the others, the euro is obligatory. Once you are in, you are in. The only way to get out is to leave the EU, which is possible under the Lisbon Treaty. So the strict legal answer is that, to leave the euro, Greece would have to leave the EU.

European law has many trapdoors. A European official once told me that Greece could leave the EU on Sunday night, and re-enter on Monday morning. Sure, this is not what Article 50 of the Treaty on European Union intended, but who knows what the European Court of Justice might decide if such a case landed on the bench.

At this point, we have to assume a number of different scenarios. Is this exit agreed with the others, and if so, will they support it financially? Or is it a unilateral act, which Angela Merkel learns about in the newspapers? An agreed exit could come about when a consensus is reached both inside and outside Greece that the adjustment burden is too high, and that the costs of subsequent rescue programmes would become economically and politically indefensible. A sudden exit could be the result of an accident, or a mistake. I would assume…

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Comments

ROBIN_FOX
February 24, 2012 at 07:24
I'm amazed the socialist parties of Europe support the fiscal conservatism that results from continued membership of the euro.
Christopher_Birchenhall
June 7, 2012 at 08:42
Wolfgang One way or another Europe has to recreate itself and all options will have strong opponents. I see no "win set", no agreement that will be ratified by all parties. As market forces rush head long into a political brick wall the rule books will crumble. Many of our current assumptions will be no longer be valid. You hint at this with your discussion of Grexit but you retain a lot of assumptions about what rules will be upheld. Pushed to the limit nothing will be sacrosanct. One way or another the underlying fundamentals will have to be realised. Europe has to allow its productive base to function. Finance is a derivative and is worthless without that productive base, if it gets in the way then the financial rules will have to give way.
C Young
June 28, 2012 at 16:03
"Within Greece, old euros would cease to be legal tender" In theory but not in practice. This account is sadly over optimistic. Who is going to hand over their stash of good Euros for stamping without violence ? Who will sell exportable goods (most foods) for stamped Euros without violence ? And who will think of holidaying in Greece while it still resembles 28 Weeks Later ? Anyone who can keep using real Euros will do, this means the public sector starves. The EU will be forced to pay the army in real money not to take power for themselves. Food will have to be extracted from farmers at gun point to keep the towns alive. What's ironic is that the people who are going to be living on leaves and bark post an exit are precisely the people holding out against the memorandum - the public sector employees.
manish kumar
July 31, 2012 at 22:24
knowledgeable article
Vijayaraj R
August 1, 2012 at 02:47
deciding to leave the euro would be a big catastrophe to the economy. instead approach the wealthier persons of the country to payoff the debts will not make any foreign debt and help the country to came out of the crisis. German have to do it first.
nirav
August 5, 2012 at 18:10
BRILLIANT ARTICLE !!
shwetima
August 6, 2012 at 13:21
it would adversely effect the greece economy
Nichol Brummer
August 13, 2012 at 11:11
.. this is why Greece probably also has the option to default while NOT exiting the EURO. They just have to unilaterally break all their contracts, also those under 'UK law', and decide not to leave the EU. They cannot be thrown out. In fact: they have been doing this in small steps, and nobody can stop them. This is why Draghi was correct when he said it is a problem if the ECB cannot control interests - it will have to buy up bonds to limit the interest spreads. And Germans can complain, but in the end they have a choice: pay up themselves, or allow the ECB to absorb greek bonds at a more realistic, lower interest rate. And Merkel will eventually have no choice but to accept this role for the ECB.
sanjiv
August 13, 2012 at 11:27
how is it inevitable that one or more country may exit.... Neither Greece nor Italy is going to exit as both will trigger instability...
sanjiv
August 13, 2012 at 11:28
how is it inevitable that one or more country may exit…. Neither Greece nor Italy is going to exit as both will trigger instability…
Rinkul sharma
August 13, 2012 at 12:22
Nice article
Jonathan
August 14, 2012 at 13:55
Greece is in such tough shape that none of this might work. What if the government is overthrown by armed revolutionaries? What if the police refuse to support the government because there's no money to pay them?
Abhi
August 20, 2012 at 13:17
Nicely Written Article .It shows the amount of complexity that Greece is about the face if it all takes the decision to leave the eurozone.
rohan
August 23, 2012 at 10:52
nice knowledgeable one!!
deepali jain
August 24, 2012 at 19:08
nice article n very knowledgeble.......
Siddharth Sharma
September 23, 2012 at 15:03
a good one....
praveen
September 26, 2012 at 14:34
nice one ,but i think every start need some sacrifice ,difficulties,but in the end it is definite that this will going to happen so preparation can be made instead of thinking what bad can happen.
RomeStatesman
November 10, 2012 at 10:31
From the vitanomics -- the revolutionary antithesis to economics -- point of view the scenario of Greece leaving the euro is a typical economics inspired nightmare. The problem is not the euro. It's the debt. If Greece has to default, it's better it defaults within rather than outside the EU.
Thijs
June 29, 2015 at 20:30
This article has become very relevant in 2015!