The Road To Grexit

None of the Euro members are sovereign currency issuers. All of them are using a foreign currency.

Ever since the Greek government called a referendum on the June 25th proposal from the Eurogroup, the Troika and representatives of other EU governments have insisted that the referendum is a vote on whether or not Greece stays in the Euro and that it could mean Grexit. Despite Greek objections, the media has generally echoed their view.

But what does Grexit actually mean? Most commentary on this quickly gets bogged down in whether or not there is any legal means for Greece to leave the monetary union. The legal position is actually unclear, since leaving the Euro was never intended to be a possibility. But the consensus appears to be as follows:

  1. Greece cannot be ejected from the Euro by a coalition of the other Eurozone member states;
  2. Greece cannot be ejected from the Euro by Eurozone institutions;
  3. Greece cannot choose to leave the Euro while remaining within the EU (though this is disputed);
  4. Greece can choose to leave the EU, which would of course mean relinquishing Euro membership;
  5. If Greece were to leave the EU, it could still continue to use the Euro, just as Panama uses the US dollar. The EU cannot prevent this.

Furthermore, sovereign default does not imply Euro or EU exit. The two are quite separate. Greece can default while remaining legally a member of the Euro – though there would be economic and political consequences.

So on the face of it, all this talk of Grexit appears to be so much hot air. But as usual with anything involving the Eurozone, it is not so simple.

Lees dit artikel van Frances Coppola verder op Forbes