Withdrawal from the Eurozone is the process whereby a Eurozone member-state, whether voluntarily or forcibly, stops using the euro as its national currency and leaves the Eurozone.
Background The possibility of a member state leaving the Eurozone was first raised after the onset of the Greek government-debt crisis. The term "Grexit" itself was reportedly"Grexit" by Kate Mackenzie and Joseph Cotterill, Financial Times Alphaville, 7 February 2012 first used by Citigroup economists Willem Buiter and Ebrahim Rahbari in a 2012 report about the possibility of Greece leaving the Eurozone."Rising Risks of Greek Euro Area Exit" by Willem Buiter & Ebrahim Rahbari, Citigroup, 6 February 2012 In the 2015 edition, the term "Grexit" entered the Oxford English Dictionary,"Grexit, Brexit Added to Oxford English Dictionary; What's Next?" by Antonia Oprita, Real Money, 28 August 2015 defined as "a term for the potential withdrawal of Greece from the Eurozone, the economic region formed by those countries in the European Union that use the euro as their national currency.Grexit: definition, Oxford Dictionaries website
Speculation followed about other countries, such as Italy, withdrawing from the Eurozone as well,"Debt crisis: as it happened", Daily Telegraph, 11 November 2011 with economist Nouriel Roubini submitting in 2011 that "Italy may, like other periphery countries [of the Eurozone], need to exit the euro and go back to a national currency, thus triggering an effective break-up of the Eurozone."
There are some European cases of a country having a common currency obtaining their own, when countries split apart. Czech koruna and Slovak koruna split from Czechoslovak koruna in 1993, both at exchange rate 1:1. Banknotes were stamped as a way of converting them to the new currency. Additionally, the Slovenian tolar and Croatian kuna were created by leaving the Yugoslav dinar, and the Estonian kroon, Latvian lats, and Lithuanian litas were created by leaving the Soviet ruble.
Legal environment It has been argued"Brussels: No one can leave the euro" by Leigh Phillips, EUobserver, 8 September 2011"The Eurozone crisis – the final stage?" by Charles Proctor, Locke Lord, 15 May 2012 that there is no provision in any European Union treaty for an exit from the Eurozone. Moreover, it has been argued, the Treaties make it clear that the process of monetary union was intended to be "irreversible" and "irrevocable." However, in 2009, a European Central Bank legal study argued that voluntary withdrawal is legally not possible but expulsion remains "conceivable.""Withdrawal and Expulsion from the EU and EMU : Some reflections" by Phoebus Athanassiou, Principal Legal Counsel with the Directorate-General for Legal Service, ECB, 2009 Although an explicit provision for an exit option does not exist, many experts and politicians in Europe have suggested that an option to leave the Eurozone should be included in the relevant treaties."German advisory council calls for exit option in the eurozone" by Daniel Tost, EurActiv, 29 July 2015
Other analysts"How to exit the Eurozone?" by Marijn van der Sluis, 22 March 2013 have submitted that there are basically three ways of exiting the Eurozone: by leaving and subsequently rejoining the EU, whereby a renewed membership in the European Union would be possible only when economic convergence had been achieved; through a Treaty amendment; or through a European Council decision. The amendment would involve an extension of Article 50Consolidated version of the Treaty on European Union/Title VI: Final Provisions of the European Treaty that would set out the process for exiting the euro.
A decision by the European Council would "probably" have to be unanimous and "with the consent of the European Parliament." It would state that a Eurozone member-state "will no longer be part of the Eurozone" and will become a member-state "with a derogation", by withdrawing the Council's earlier decision for that state's entry into the Eurozone. Article 139Consolidated version of the Treaty on the Functioning of the European Union/Title VIII: Economic and Monetary Policy regulates the terms of this "derogation": Member States in respect of which the Council has not decided that they fulfil the necessary conditions for the adoption of the euro shall hereinafter be referred to as 'Member States with a derogation'.
The competence of the council to retract its earlier decision would "possibly" invoke the argument that a given competence to decide on a matter always includes the competence to retract that decision. Additionally, this retractile power can be derived from the "flexibility clause" of article 352 TFEU, which grants the council, on a proposal from the Commission and with the consent of the European Parliament, the ability to unanimously adopt the "appropriate measures" to attain one of the objectives set out in the Treaties as set out in Article 3 of the European Union – essentially ascertaining that staying in the Eurozone would be so "devastating" for the well-being of the people of the member-state, and/or the rest of the peoples of Europe, that an exit would be legitimate in light of the Treaties' objectives. Then, it would be ostensibly possible to take a decision retracting the previous decision that approved entry to the Eurozone.
Acknowledging that the method of any departure from the Eurozone remains "unknown," legal analysts have pointed out that any potential withdrawal "includes the spectre that euro obligations owed by residents of departing member states might be redenominated into [the] newly established national currencies.""Eurozone crisis – the corporate perspective ", Herbert Smith LLP report, January 2012
On the issue of leaving the Eurozone, the European Commission has stated that "[t]he irrevocability of membership in the euro area is an integral part of the Treaty framework and the Commission, as a guardian of the EU Treaties, intends to fully respect [that irrevocability]." The Commission added that it "does not intend to propose [any] amendment" to the relevant Treaties, the current status being "the best way going forward to increase the resilience of euro area Member States to potential economic and financial crises.Text of response by Olli Rehn, European Commissioner for Economic and Monetary Affairs and the Euro, on behalf of the European Commission, to question submitted by Claudio Morganti, Member of the European Parliament, 22 June 2012 The European Central Bank, responding to a question by a Member of the European Parliament, has stated that an exit is not allowed under the Treaties.Text of message by Mario Draghi, ECB, to Claudio Morganti, Member of the European Parliament, 6 November 2012
Withdrawal from the European Union If a state leaves the European Union, Article 50 of the Treaty on European Union says that "Treaties shall cease to apply to the State in question". If the state has been using the euro as its currency then, rather than form a new domestic currency, it might continue to use the euro unilaterally as Montenegro does or by way of a monetary agreement with the EU as Andorra does without being a member of the EU.
Potential operational process On 18 October 2011, Eurosceptic British businessman and Conservative life peer Simon Wolfson launched a contest that offered a £250,000 reward for "a plan for how the euro could be safely dismantled," and for "what a post-euro eurozone would look like, how transition could be achieved and how the interests of employment, savers, and debtors would be balanced.""I'm claiming the £250,000 Wolfson prize for how to break-up the euro", Daily Telegraph, 6 January 2012
The winning entry, titled "Leaving the Euro: A Practical Guide,""Wolfson prize for euro exit plan won by Roger Bootle", BBC News, 5 July 2012 recommended that member-states who want to exit should introduce a new currency and default on a large part of their debts. The net effect, the proposal claimed, would be "positive for growth and prosperity". It called for keeping the euro for small transactions and for a short period of time after the exit from the Eurozone, along with a strict regime of inflation-targeting and tough fiscal rules monitored by "independent experts". The plan also suggested that "key officials" should meet "in secret" one month before the exit is publicly announced, and that Eurozone partners and international organisations should be informed "three days before"."Leaving the Euro: A Practical Guide ", summary of the submission by Capital Economics for the Wolfson Prize, 2012 The winning entry's team leader stated said, "if executed correctly, the pain of exit would relatively soon be replaced by a return to growth," something that would encourage other distressed states still in the currency zone to exit as well."
In 2018, Columbia University economics professor and Nobel laureate Joseph Stiglitz, in the context of arguing that Italy faces "a choice [the country] shouldn’t have to make: between membership in the Eurozone and economic prosperity," remarked that "the challenge [of exit] will be to find a way to leave the Eurozone that minimizes the economic and political costs. A massive debt restructuring, carefully done, with special attention to the consequences for domestic financial institutions, will be essential. Without such a restructuring," Stiglitz argued, "the burden of euro denominated debt would soar, offsetting possibly a large part of the potential gains." He claimed that from "an economic perspective, the easiest thing to do would be for [the exiting country's] entities (governments, corporations and individuals) to simply redenominate debts from Euros into the new [national currency]" and then "enact a super-Chapter 11 bankruptcy law, providing expeditious recourse to debt restructuring to any entity for whom the new national currency presents severe economic problems."
Economic considerations At the American Economic Association's annual meeting of 2015, University of California, Berkeley economic historian Barry Eichengreen predicted that the withdrawal of a member state, such as Greece, from the Eurozone, would "set off [a] devastating turmoil in financial markets.""Greek euro exit would be ‘Lehman Brothers squared’: economist" by Greg Robb, Market Watch, 5 January 2015 At the same event, Harvard professor of Public Policy and professor of Economics Kenneth Rogoff characterised the overall common-currency project in Europe a "historic disaster", while Harvard professor of Economics and NBER president emeritus Martin Feldstein opined that "there may be no way to end to [the] euro crisis," and suggested that to avoid a break-up and "ensure the Euro's survival," the best way forward "would be for each individual Eurozone member-state to enact its own tax policies to spur demand, including cutting the value-added tax for the next five years to increase consumer spending."
Specifically for Greece, a 2015 PwC study"What would a Greek exit mean for the Eurozone?", PricewaterhouseCoopers, March 2015 expected the "new drachma" to depreciate "almost immediately" and inflation in the country to rise "sharply" to around 6% on average. The study predicted that "the [new currency's] depreciation would lead to a high inflationary environment with a medium-term inflation rate of around 4%, more than double the expected rate in the Eurozone." German ordoliberal economist and president of the Ifo Institute for Economic Research Hans-Werner Sinn, on the other hand, argued for the economic benefits for Greece if the country were to withdraw from the Eurozone."Why Greece Should Leave the Eurozone" by Hans-Werner Sinn, The New York Times, 24 July 2015