Leaving the Euro

Introduction

Until recently, to talk of 'secession' from the European Union (EU) would have been next to absurd, considering the EU's contribution to lasting peace and stability in Europe, its strong attraction all along its constantly shifting borders and the success of its enlargements hitherto. The same could be said of a voluntary exit from EMU, 'one of the most important growth areas of European integration', which is widely considered to have: (i) averted costly currency crises, (ii) contributed to economic integration, market growth and prosperity across the EU, and (iii) improved the euro area Member States' resilience to external shocks.

Recent developments have, perhaps, increased the risk of secession (however modestly), as well as the urgency of addressing it as a possible scenario. One reason for this, ironically, is the EU's success so far. The Union's slow but continuing progress towards a more advanced level of integration, involving closer political and economic ties between its Member States and the transfer of an ever-increasing share of their essential sovereignty to the supranational European institutions, in conjunction with the EU's declared ambition (unpopular with the public of some Member States) to bring new members within its fold, have created new tensions or exacerbated existing ones, testing the Member States' commitment to the furtherance of European integration

The increase, under the recently ratified Lisbon Treaty, of the number of policy areas where decisions will be taken by qualified majority voting rather than unanimously, the economic difficulties faced by some euro area economies (and the association made between those difficulties and the euro), the rigors of the Stability and Growth Pact, and the impact of EMU on the Member States' room for manoeuvre in economic policy at a time of severe financial crisis are all additional reasons why the possibility of secession from the EU or EMU, and its implications, are worth examining. This is so even if Iceland's recent application for EU membership, and the possibility of applications from other, Euro-sceptic, countries might suggest that the ongoing financial crisis may strengthen rather than weaken European cohesion.

If the scope for voluntary secession is worth examining, the same is true of the expulsion of a Member State from the EU or EMU (acknowledging the differences between a forcible expulsion and a voluntary withdrawal, especially where the latter is an agreed one). The spectacular rebuffs, in recent years, of further integration initiatives, the alarming wave of reluctance of the peoples of Europe to the perceived loss of their sovereign rights to an allegedly 'unaccountable' and 'undemocratic' EU as well as the persistent, 'principled' opposition of some Member States to further integration, in conjunction with the difficulties faced by some of them in steering clear of excessive budgetary deficits and in complying with their Stability and Growth Pact obligations at a time of acute financial crisis suggest that, however remote, the risk of a non-compliant Member State being expelled from the EU or EMU is still conceivable.

The purpose of this paper is to examine the legal parameters of a Member State's voluntary or forced exit from the EU and/or EMU. This paper is divided in three parts. Part One examines the issue of a Member State's voluntary withdrawal from the EU and/or EMU. Part Two looks at the legal and conceptual issues arising from a Member State's possible expulsion from the EU and/or EMU. Finally, Part Three provides an overview of the implications of a Member State's exit from the EU and/or EMU for its use of the euro. It will be argued that unilateral withdrawal from the EU would not, as a matter of public international law, be inconceivable, although there can be serious principled objections to it; and that withdrawal from EMU without a parallel withdrawal from the EU would be legally impossible. As for a Member State's expulsion, whether from the EU or from EMU, the conclusion is that while this may be possible in practical terms – even if only indirectly, in the absence of an explicit Treaty mechanism – expulsion from either the EU or EMU would be so challenging, conceptually, legally and practically, that its likelihood is close to zero. The paper ends with a reminder that, even if institutional membership of the euro area would not survive a Member State leaving the EU, this would not necessarily prevent it from using the euro.

Two caveats and one clarification are apposite. The analysis in this paper is limited to an assessment of the existence of a legal right of withdrawal or expulsion either on the basis of the existing law (de lege lata) or on the basis of what it is presumed the law should be (de lege ferenda). More importantly, this paper examines the conditions for the exercise of such rights, as well as the implications and likelihood of their being exercised. This paper will not examine the scenario of the secession of part of an EU Member State, motivated by a desire for self- determination and followed by a declaration of independence. Such a scenario would no doubt give rise to a number of delicate questions, not least in creating precedents for the EU's treatment of seceding entities and affecting the stability of those Member States that face secessionist demands. Moreover, acknowledging that public international law is often less 'objective' and more 'political' than private law, this paper will not examine the political aspects of a Member State's decision to withdraw or of a decision of its partners to expel it from the EU or EMU. Finally, the fact that the possibility of withdrawal may not have existed under the EC and EU Treaties until recently does not per se exclude the possibility of its unilateral assertion, followed by its recognition as a legal right by the withdrawing Member State's former partners, nor does it have anything to say about whether or not such a right could be introduced by agreement between the parties to a treaty (as it now has). The focus of this paper is, therefore, less on whether a right of withdrawal or expulsion already existed or has rightly been introduced, and more on the practical implications of its unilateral assertion and/or its exercise, now that the right of withdrawal has been introduced into the Community legal order.