The Right to Leave the Eurozone

By Dammann, Jens C. | Texas International Law Journal, Spring 2013 | Go to article overview

The Right to Leave the Eurozone


Dammann, Jens C., Texas International Law Journal


SUMMARY

INTRODUCTION 126

I. OTHER OPTIONS FOR LEAVING THE EUROZONE 131

A. Leaving the European Union 131

B. Withdrawal by Treaty Amendment 132

C. Clausula Rebus Sic Stantibus 133

1. Applicability to the Treaty on the Functioning of the European Union 134

2. The Sovereign-Debt Crisis as a Fundamental Change 134

II. Withdrawal De Lege Lata 137

A. The Duty to Join the Eurozone 138

B. The Irrevocable Determination of Exchange Rates 140

C. The Irreversible Introduction of the Euro 141

D. Europe à la Carte? 142

E. Argumentum e Contrario Based on Article 50 of the Treaty on European Union 143

F. Ever Closer Union 143

G. Summary 145

III. THE LEGAL POLICY CASE FOR A RIGHT TO WITHDRAW 145

A. The Default Character of the Treaty on the Functioning of the European Union 145

1. Hypothetical Bargains: Planning for Failures to Opt Out 146

2. Some Defaults Are Easier to Opt Out of Than Others 147

a. No Withdrawal Right 148

b. Granting a Withdrawal Right 149

B. Beyond the Costs ofOpt-Outs and Opt-Out Failures 150

1. Externalities 150

2. Agency Costs 151

3. Damage to Currency Union as Commitment Device 151

4. Borrowing Costs 152

5. Extortion 153

6. Letting a Good Crisis Go to Waste 153

CONCLUSION 154

The Eurozone is facing an existential crisis. Greece has been teetering on the verge of national insolvency. Repeated interventions by the European Union and the International Monetary Fund have so far allowed Greece to avoid this fate, but no one can predict for how long. Portugal, Ireland, and Spain have also had to rely on rescue packages by the European Union, and it remains unclear to what extent their economies will weather the crisis.

One of the options discussed in this context is for individual countries to leave the Eurozone. Initially, this option was brought into play solely for countries like Greece that were at the center of the economic crisis. Some believe that such countries could profit from leaving the Eurozone because a subsequent devaluation of their national currencies would make it easier for their economies to become competitive again.

More recently, however, it has been suggested that some of the more stable EU Member States- most notably Germany- might also want to leave the Eurozone. The chief attraction of such a move would be to avoid being caught by mountainous liabilities generated by ever-new rescue packages.

Against this background, a crucial question is whether the Member States have a unilateral right to exit the Eurozone while staying in the European Union. In the existing literature, this question has so far been answered with a resounding, "no." By contrast, this Article takes the opposite position. More specifically, my argument has two steps: First, I show that, as a doctrinal matter, the case against a right to withdraw from the Eurozone is far from compelling. Second, I demonstrate that, under certain conditions, a right to leave the Eurozone is desirable as a matter of legal policy.

INTRODUCTION

The Eurozone is perhaps the most ambitious part of European unification. It officially came into existence on January 1, 1999, when eleven Member States replaced their national currencies with the euro.1 Exactly two years later, Greece joined the Eurozone,2 and subsequently, five other Member States followed suit.3 As of 2013, seventeen of the twenty-seven Member States are united in the Eurozone.4

The Eurozone was a controversial project from its onset. The various preconditions for a successful common currency that had been posited by economists in the literature on optimal currency areas5 were not met. Most notably, the Eurozone lacked- and continues to lack- a central authority in charge of fiscal policy.6 Moreover, political integration has remained limited, and labor mobility within the Eurozone is quite low. …

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