Sovereign debt bubble thread

[alfred russel]

Legally there's no way for a country to leave the Euro. 

I don't see why this is so important--my understanding is that there aren't legal ways to do a lot of the solutions and actions being contemplated. This is why there are so many summits, etc. So agreements can be reached to create the authority needed to resolve the crisis.

[Sheilbh]

Sheilbh, I don't follow the mechanisms. It seems the steps are:

1. Countries decide to dissolve the eurozone.
2. ???
3. Common market is gone.

The common market is distinct from the eurozone, has members that are not in the eruozone, predates the euro, and has almost universal support. I see no reason to think it is going away.

They both come from the EU and draw their legal force from the treaties.  There is no legal mechanism to leave the way to leave the Euro without leaving the EU.  If you leave the EU then you're out of the single market.  At the minute the situation is that a country can no more withdraw from the Euro and remain within the EU, and as a consequence the single market, than they could withdraw from the single market and remain within the EU.

So if we assume Greece leaves the Euro they will leave the EU.  It's simply impossible to imagine a founder member like Italy leaving the Euro or the EU unless the whole thing's falling apart. 

To be honest I think if this was easy and non-crippling the Greeks would already have done it.

[Iormlund]

Legally there's no way for a country to leave the Euro. 

I don't see why this is so important--my understanding is that there aren't legal ways to do a lot of the solutions and actions being contemplated. This is why there are so many summits, etc. So agreements can be reached to create the authority needed to resolve the crisis.

You'd have to amend an existing or create a new EU treaty. That means everyone giving their approval - including an Irish referendum. All while money vanishes from the area and banks fall left and right.

[alfred russel]

You'd have to amend an existing or create a new EU treaty. That means everyone giving their approval - including an Irish referendum. All while money vanishes from the area and banks fall left and right.

Is that the only way? When push comes to shove, soveriegn governments tend to do what they want.

[Sheilbh]

I don't see why this is so important--my understanding is that there aren't legal ways to do a lot of the solutions and actions being contemplated. This is why there are so many summits, etc. So agreements can be reached to create the authority needed to resolve the crisis.

There are always this many summits.  They just normally don't matter to the world.  But I don't think you're right, they've been creative and pushed the treaties to the limit but they have operated within them.  All authority over the past few months has been based on the existing treaties and, I think, approved by the German Constitutional Court.

If we reach the point where it's all falling apart then you're right the treaties probably won't matter.  And we'll already have seen so large a political failure that I think any salvaging operation would be very difficult.

But this isn't a case of the EU making a change so it's okay for a country to leave.  It's about all 27 countries agreeing to that treaty change - so our government overcoming the British Eurosceptic Tories not going mad that we're not renegotiating everything - and that it's then passed - which includes an Irish referendum and (I think) the German Constiutional Court checking it out.  It's effectively 27 countries having to make a change that's acceptable in their own domestic situation.

Saying that it should just be cobbled together is like suggesting Congress and the President should allow some extra-constitutional procedure on a bare majority justified by a crisis.  I just don't think it'd fly.

[Sheilbh]

Is that the only way? When push comes to shove, soveriegn governments tend to do what they want.

27 of them, in unison?  Maybe.  But given that they'll have failed to act together to save the Euro in the past 18 months I don't see them somehow managing this.

[alfred russel]

To be honest I think if this was easy and non-crippling the Greeks would already have done it.

Three reasons:
1) it actually isn't easy, I'm only saying 30-50% GDP contraction is crazy.
2) if Greece leaves the euro will still exist, which makes things messier.
3) the rest of the eurozone and EU is prone to telling Greece to get lost in a way it isn't for Spain or Italy.

Also, there are some prominent voices that think leaving the euro is still the best course for Greece.

[Sheilbh]

Also, there are some prominent voices that think leaving the euro is still the best course for Greece.

I don't think many of them know much about the EU though and it's worth noting that I think only the Communists - in Greece - support withdrawing from the Euro.  The rest are committed to whatever it takes to stay in. 

Over here the hardline Eurosceptics are pretty supportive of Greece leaving.

[alfred russel]

Is that the only way? When push comes to shove, soveriegn governments tend to do what they want.

27 of them, in unison?  Maybe.  But given that they'll have failed to act together to save the Euro in the past 18 months I don't see them somehow managing this.

If Germany, France, the UK, Spain, and Italy come to an agreement and are serious enough about it, the rest don't really matter, right? If it is deemed serious enough, they can just leave and form a duplicate EU without the euro. If Slovakia doesn't like it, they can of course decline to join up.

[Zanza]

I don't see why even a disorderly exit of Greece (or others) from the Eurozone would destroy the Common Market. We ignored the treaties when starting the bailouts and EFSF too, so legality is not really an argument. Even with the New Drachma, Greece and everybody else would still benefit from the Common Market. They would probably need to institute capital controls for a time to make the switch, but that's all really.

[Zanza]

3) the rest of the eurozone and EU is prone to telling Greece to get lost in a way it isn't for Spain or Italy.

Why? It's not like any argument about the benefits of the single market and EU membership rely on Euro membership - for both Greece and the rest of the EU.

[Zanza]

Is that the only way? When push comes to shove, soveriegn governments tend to do what they want.

27 of them, in unison?  Maybe.  But given that they'll have failed to act together to save the Euro in the past 18 months I don't see them somehow managing this.

If Germany, France, the UK, Spain, and Italy come to an agreement and are serious enough about it, the rest don't really matter, right? If it is deemed serious enough, they can just leave and form a duplicate EU without the euro. If Slovakia doesn't like it, they can of course decline to join up.

Germany and France are supposedly considering a "Coalition of the Willing" that will be in parallel to the current EU treaties and will be open to Eurozone members that are willing to go further on common fiscal policy. If that thing flies, we'll have a "core" that is defined not like it is defined now but rather by willingness to commit to common fiscal policy. The "periphery" will be those Eurozone countries that prefer to stay out. The advantage is that it can be implemented faster than a general EU treaty change.

[alfred russel]

3) the rest of the eurozone and EU is prone to telling Greece to get lost in a way it isn't for Spain or Italy.

Why? It's not like any argument about the benefits of the single market and EU membership rely on Euro membership - for both Greece and the rest of the EU.

Because Greece is a small enough country that its benefits in the common market are small, so having them exit wouldn't be a big deal to the rest of the eu. But if you wanted to prevent countries from leaving the euro, then the precedent of letting them drop the currency but stay in the eu could be big.

[Zanza]

Yes, but throwing them out of the EU would reverse 50 years of progress as Sheilbh said. Why would any EU politican want that? I think leaving the Euro will be painful enough to prevent other countries from dropping out.

[The Brain]

If the Greeks were sent to Madagascar the better areas of Greece could be sold off to pay the debt. As they are now, with Greeks in them, they are worthless.