Leaving the Euro

Abstract

This paper examines the issues of secession and expulsion from the European Union (EU) and Economic and Monetary Union (EMU). It concludes that negotiated withdrawal from the EU would not be legally impossible even prior to the ratification of the Lisbon Treaty, and that unilateral withdrawal would undoubtedly be legally controversial; that, while permissible, a recently enacted exit clause is, prima facie, not in harmony with the rationale of the European unification project and is otherwise problematic, mainly from a legal perspective; that a Member State's exit from EMU, without a parallel withdrawal from the EU, would be legally inconceivable; and that, while perhaps feasible through indirect means, a Member State's expulsion from the EU or EMU, would be legally next to impossible. This paper concludes with a reminder that while, institutionally, a Member State's membership of the euro area would not survive the discontinuation of its membership of the EU, the same need not be true of the former Member State's use of the euro.

Source: European Central Bank,
https://www.ecb.europa.eu/pub/pdf/scplps/ecblwp10.pdf

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.

Unilateral withdrawal from the EU or EMU

The reference to 'unilateral' withdrawal is hardly unintentional. The distinction between unilateral and negotiated withdrawal is significant, since any inquiry into the existence of a lega right of withdrawal can only concern a non-negotiated withdrawal (negotiated withdrawals are, in principle, always possible). The purpose of this part is to ascertain whether a right of unilateral withdrawal is compatible with the Community legal order and to examine the main features of and concerns raised by an 'exit clause' recently enacted now that the Lisbon Treaty has been ratified.

A. A legal right of withdrawal? Doctrinal considerations

1. Withdrawal under the treaties

Unlike the conditions for accession to the EU, which are addressed, even if not exhaustively, in Article 49 TEU, neither the founding treaties (which, with the exception of the European Coal and Steel Community (ECSC) Treaty, have no specified term), nor the successive amending treaties made until the ratification of the Lisbon Treaty, made any provision for a Member State's withdrawal (negotiated or unilateral) from the EU or EMU. As one author has written, there are three main reasons why the treaties were silent on withdrawal: first, it was in order to avoid putting question marks to the Member States' commitment to the achievement of their shared objectives; second, it was because providing for the possibility of withdrawal might have increased its likelihood; and third, because to provide for this possibility would entail the daunting task of spelling out the procedure and consequences of withdrawal. Whatever the force of the first two reasons, there can be little doubt that disentangling the legal and other implications of withdrawal would be a formidable challenge. For instance, withdrawal from EMU would entail: (i) creating a new currency or re-establishing the old currency of the withdrawing Member State; (ii) refunding the departing national central bank's (NCB) contribution to the European Central Bank's (ECB) capital, and reimbursing its foreign reserve assets transferred to the Eurosystem; and (iii) transferring full monetary sovereignty back to the seceding NCB, with all the practical difficulties and legal uncertainties that this would involve for outstanding monetary policy operations, especially in the case of unilateral withdrawal. As for a Member State's withdrawal from the EU, the complexities surrounding it are legion, affecting the rights and obligations of every natural or legal person inside or outside the territory of the withdrawing Member State who is or who may be affected by it. Whatever the explanation for the treaties' silence on the possibility of withdrawal, its legal consequence is that, until now, no Member State has had the clear option of withdrawing from the EU or EMU, especially not unilaterally. This situation is about to change now that the Lisbon Treaty has been ratified by all 27 Member States.

The silence of Community primary law on the existence or otherwise of a legal right of withdrawal was, in any event, inconclusive, lending itself to two fundamentally opposed interpretations. One is that a right of unilateral withdrawal existed even in the absence of any explicit reference to it in the treaties, since sovereign States were, in any case, free to exercise their sovereign right to withdraw from their international commitments. The other is that the lack, until recently, of a formal exit clause in Community primary law must have been intentional, testifying to the Member States' lasting commitment to the EU's objectives and to the irreversibility of the European unification process, which is irreconcilable with a unilateral right of withdrawal. There were, pre-Lisbon Treaty, several indications in the treaties that the latter interpretation was no less plausible than the former. One was that both the EC and the EU Treaties were concluded for unlimited periods; another was that the original Member States' commitment 'to lay the foundations of an ever closer union among the peoples of Europe' was renewed and strengthened with each reform of the treaties, pointing to the continuity and irreversibility of the European unification project and to the apparent impossibility of secession from the EU if the EU's objectives are to be fulfilled. The explicit acceptance, by new entrants, of the acquis, the restrictions on the Member States' power to renegotiate their accession agreements (except in connection with derogations or other transitional measures), the solidarity principle expressed in Article 10 EC, and the fact that the treaties can only be amended in accordance with the procedure in Article 48 TEU also supported the view that Member States were not free to withdraw from the EU or, by extension, EMU, whether by agreement or, a fortiori, unilaterally.

2. The relevance of the Vienna Convention and of public international law

B. The Lisbon Treaty exit clause: a critical assessment

1. Description of the exit clause

The idea of a Member State's withdrawal from the Union was to take a new turn with the introduction of Article I-59 of the draft Treaty on establishing a Constitution for Europe, (whichbecame, Article I-60 of the Treaty establishing a Constitution for Europe). The differences in this respect between the now defunct draft Constitution and the recently ratified Lisbon Treaty are only minor and of a technical nature. Article 50 of the Lisbon Treaty explicitly makes provision for the voluntary secession of a Member State from the EU. Specifically, the exit clause provides that a Member State wishing to withdraw from the EU must inform the European Council of its intention; the Council is to produce guidelines on the basis of which a withdrawal agreement is to be negotiated with that Member State; and the Council, acting by a qualified majority and after obtaining the consent of the European Parliament, will conclude the agreement on behalf of the EU. The withdrawing Member State would cease to be bound by the treaties either from the date provided for in the withdrawal agreement or, failing that, two years after notification of its intention to withdraw. A former Member State seeking to rejoin the EU would have to follow the same admission procedure as any new candidate country.

2. Assessment of the non-EMU-specific concerns raised by the exit clause

The exit clause, as formulated, raises at least three concerns. First, despite the references in it to a negotiated agreement on the details of the withdrawing Member State's departure, the exit clause recognises, effectively, a unilateral right of withdrawal as well as a possibility for a Member State to negotiate its agreed exit from the EU. Second, the exit clause only appears to be appropriate if only one or two Member States were to withdraw at a time, but not if there were to be a mass exit from the EU. A third, and perhaps the most serious, concern, is that the exit clause contains no special provisions on the requirements for the withdrawal of a Member State which has adopted the euro. Even if the Lisbon Treaty had not been ratified, its guidance on how to address the possibility of a Member State's withdrawal would remain useful, and ventilating concerns connected with the exit clause could contribute to a more functional withdrawal mechanism being adopted upon any future amendment to the EU Treaty.

Starting with the first of these three concerns, there are at least three clear indications that the exit clause embodies a unilateral right of withdrawal. These are: (i) the reference, in Article 50(1), to a Member State's withdrawal 'in accordance with its own constitutional arrangements'; (ii) the fact that a Member State's withdrawal is not conditional on the conclusion of a withdrawal agreement, since a Member State can withdraw even if negotiations with the Council break down, provided that two years have elapsed since the notification to the Council of its decision to withdraw; and (iii) the fact that 'the right to withdraw is not connected with the adoption of a constitutional change that a Member State cannot accept, but introduced without such restrictions'. This third consideration is crucial since it is not the element of negotiation that would make a Member State's withdrawal consensual (as opposed to unilateral), it is the absence of restrictions on a Member State's right to withdraw that is decisive. Negotiations would, in any case, be necessary to organise a Member State's departure. If this assessment is correct, that Member States have a unilateral right of withdrawal under the Lisbon Treaty, the exit clause would appear to represent a notable departure, rather than a mere codification of international or Community law on the right of Member States to withdraw from their treaty commitments. For the reasons explained earlier, this does not sit comfortably with the fundamentally integrationist rationale of the treaties, with the sui generis nature of the Community legal order and, not least, with Article 48 TEU and with the specific procedure for amending the treaties that this provides (of which a Member State's withdrawal would be a prime example).

Why the drafters of the Lisbon Treaty introduced such an abuse-prone provision into the treaties can only be a matter of speculation. Whatever the rationale of the recognition of a unilateral right of withdrawal, and however valid the questions that this raises, it has perhaps two redeeming features. First, the introduction of this new possibility may prepare the ground so that, should there be a unilateral withdrawal, it will not find the EU institutionally unprepared, helping bring a semblance of order to what would be bound to be a dramatic event and averting the risk of that event affecting the continuation of the integration process by the remaining Member States. Second, the exit clause recognises the practical reality that, politically, a sovereign Member State cannot be coerced into honouring commitments it no longer has an interest in. This would, in turn, help the EU avoid the legal wrangles that too legalistic an approach to a Member State's withdrawal might entail. The introduction of the exit clause indirectly confirms the validity of the conclusion drawn above, that such a right did not exist under Community law pre-Lisbon Treaty, and that nothing short of a treaty agreement between the Member States could bring it into being (if such a right existed already, the exit clause would be redundant).

The second of the three concerns identified above relates to the fact that the exit clause is conceived with a view to the withdrawal of one or two Member States at a time. While, on the face of it, it is not unreasonable for the Council to represent the EU in withdrawal negotiations, since it is the Council that negotiates EU accessions, if a more substantial number of Member States were to withdraw, this role of the Council could not work for the purely practical and conceptual reason of the limited legitimacy of the Council representing a 'depleted' EU in a mass exit scenario. The exit clause's failure to cater for a mass exit raises concerns because, as currently drafted, the exit clause does not preclude multiple withdrawals, an eventuality that would defeat the objective of orderly withdrawal, presumed to be the aim of the introduction of the exit clause; however unlikely a mass withdrawal, the drafters of the Lisbon Treaty should, perhaps, have catered for it. At the same time, the requirement, in the exit clause, for a qualified majority is difficult to account for, given the requirement for unanimity for EU accessions.

The third and, perhaps, most serious concern raised by the proposed exit clause is that it does not make any special provisions for the withdrawal of EU Member States which also participate in the euro area. Because of the particular features of EMU, this concern will be addressed separately in the following section.

3. Assessment of the EMU-specific concerns raised by the exit clause

While the silence of the exit clause on the procedures for the withdrawal of a euro area Member State is, at first sight, understandable, it has been criticised for threatening the stability of the euro as well as for the possibility that it might lead to a proliferation of 'disaster clauses' to cater for changes in the composition of the euro area. More importantly, the exit clause's silence is problematic because it leaves room for speculation on the extent to which there is also a right of withdrawal from EMU and whether such withdrawal would necessarily be linked to a Member State's withdrawal from the EU or could be independent from it. There appear to be two alternative approaches to the absence of any guidance in the exit clause on the existence of a separate right of withdrawal from EMU. One is to see it as evidence that a Member State's right to withdraw from EMU is implicit in its right to repudiate the treaties in their entirety, so that no special procedure for it is required in the exit clause; the other is that no right of withdrawal from EMU was ever intended to exist. These two alternative interpretations of the silence of the exit clause on procedures for the withdrawal of a euro area Member State are examined in the following.

The first interpretation would be consistent with the view that withdrawal from EMU without a parallel withdrawal from the EU would be legally inconceivable. As seen above, unlike EU participation, EMU participation is a legal obligation for all Member States. While a Member State may be free to denounce its EU participation and repudiate its treaty obligations in their entirety, it would not be free to go back on its decision to join EMU without breaching a binding obligation, under the EC Treaty, unless it were also to withdraw from the EU. Consequently, the only way to withdraw from EMU is to withdraw from the EU. This interpretation would nevertheless be problematic; it postulates the possibility of unilateral withdrawal from EMU under the same conditions as those applicable to a Member State's withdrawal from the EU, i.e. even if no withdrawal agreement had been concluded between the Council (with the full involvement of the ECB) and the departing Member State. Such a genuinely unilateral right of withdrawal would be unthinkable in the context of EMU, not least on account of its open conflict with the plain language of Articles 4(2), 118 and 123(4) EC and Protocol 24 on the Transition to the Third Stage of Monetary Union and, in particular, with the references therein to the 'irrevocability' of the substitution by the euro of the currencies of the participating Member States and to the 'irreversibility' of the monetary union process.

The only alternative interpretation is that there was never intended to be a right of withdrawal from EMU, among other things because of the complex network of rights and obligations that EMU entails for its participating Member States and their NCBs and which cannot easily (and certainly not automatically) be unwound through a unilateral act ofwithdrawal. The necessary implication of accepting this alternative interpretation is that only an agreed exit from the euro area is possible. However, this argument is also problematic since, reasoning a maiore ad minus, to recognise, as the exit clause does, the possibility of unilateral withdrawal from the EU is to also recognise the possibility of unilateral withdrawal from a sub- set of the EU (namely EMU). Moreover, to accept this alternative as valid would postulate the existence of two different withdrawal procedures, depending on whether the Member State involved is part of the euro area or not. This would mean that EU Members could withdraw unilaterally and without the need to negotiate their departure once the two year period referred to in the exit clause has expired, while euro area Members would need to negotiate their withdrawal, at least from EMU. However reasonable, such a distinction might produce the perverse effect of encouraging Member States to delay indefinitely their accession to EMU in order to benefit from the apparently more lenient withdrawal requirements applicable to non-EMU participants.

Both of the foregoing interpretations of the silence of the exit clause on the existence (or otherwise) of a possibility to withdraw from EMU are so unsatisfactory that it would be unwise to attempt to choose between them on the basis of deductions, however logical or informed these may be. A potential right of withdrawal from EMU and the procedures for such withdrawal are too serious to be left to mere inference. For this reason, the author agrees with Smits that the exit clause is 'one of the major faults of the Constitution' (and, by extension, also of the Lisbon Treaty). As for how the exit clause's weaknesses might be rectified, it is argued that nothing short of the express inclusion in the exit clause of a requirement for a negotiated withdrawal from EMU (involving both the Council and the ECB) would suffice because: (i) withdrawal from EMU is too far-reaching and complex a matter to be amenable to the exercise of a right of unilateral withdrawal (such as the right to which the Lisbon Treaty's exit clause rightly or wrongly amounts); and (ii) the EC Treaty is clearly opposed to the possibility of unilateral withdrawal, at least in the context of EMU.

4. Intermediate conclusion

The conclusion is that Member States could not, pre-Lisbon Treaty, withdraw unilaterally either from the EU or, a fortiori, from EMU, and that the only way for them to do so legally would be by means of a negotiated agreement with their fellow Member States. Such an agreement would necessarily involve a Treaty amendment and require the unanimous consent of its partners, in accordance with Article 48 TEU. How likely some Member States are to wish to withdraw voluntarily (however heartily their partners may desire their departure) can only be a matter of speculation. What is clear, however, is that given the serious legal and practical difficulties that the withdrawal of a Member State would entail, and which even negotiations in good faith may not suffice to overcome, those who supported the withdrawal of Member States accused of having 'thrown a spanner in the works' of European integration may well have advocated a step which, though politically imaginable, would be legally inconceivable (at least pre-Lisbon Treaty).

This conclusion inevitably raises the question of whether, in the absence of its willingness to withdraw or of an agreement on the procedure for withdrawal, a Member Statecould be expelled against its will, either from the EU or EMU. Part Two of this paper will examine these questions.

A collective 'right of expulsion’ from the EU or EMU?

The recognition of a unilateral right of secession by the drafters of the Lisbon Treaty inevitably prompts the following question: if Member States are to have the right to secede voluntarily, should there not be a possibility for their fellow Member States to expel them from the EU if their participation were to be deemed undesirable or prejudicial by their partners and if the latter were to fail to persuade them to withdraw from the EU or EMU voluntarily? Under what conditions and following what procedures could such a right of expulsion be exercised? The prospect of expulsion came to the fore in June 2008, when Irish voters rejected the Lisbon Treaty, an event that was to trigger one of the most acute crises in the recent history of the EU. This Part examines the existence of a right of expulsion from the EU and EMU, the possible rationale for its introduction (assuming that such a right does not already exist) and the extent to which the lack of such a right would be an obstacle to a Member State being left behind by its partners.

A. Expulsion from the EU or EMU: doctrinal considerations

Unlike the Charter of the United Nations (UN), Article 6 of which expressly provides for the possibility of a UN Member being expelled for persistently infringing the principles of the Charter, there is no treaty provision at present for a Member State to be expelled from the EU or EMU. The closest that Community law comes to recognising a right of expulsion is Article 7(2) and (3) TEU, allowing the Council to temporarily suspend some of a Member State's rights (including its voting rights in the Council) for a 'serious and persistent breach by a Member State of the principles mentioned in Article 6(1)' of the EU Treaty. This might be thought of as a preliminary step to the expulsion of a Member State, but it is not the same as its definitive expulsion. The idea that the treaties should explicitly provide for a possibility of expulsion was discussed in the 2001-2003 Intergovernmental Conference responsible for drafting the ill-fated Constitutional Treaty, but was abandoned. The same idea resurfaced more recently in the discussions on the Lisbon Treaty, but was once again abandoned. If a right to expel Member States from the EU or EMU does not exist, could such a right be asserted or should it be introduced? Several considerations are relevant here, all of which militate against the assertion, by way of interpretation, or otherwise, of a collective right of expulsion from the EU or EMU.

The first objection to reading a right of expulsion into the treaties is a formal one. A Member State's expulsion from the EU or EMU would inevitably result in an amendment of the treaties, for which the unanimous consent of all Member States is necessary under Article 48 TEU. Given that a Member State's expulsion would, by definition, be contrary to the presumed wish of that Member State to continue its membership of the EU, a right of expulsion would be inconceivable, since it would have to entail an unauthorised Treaty amendment, in breach of Article 48 TEU. Besides, it is likely that some Member States would object to the introduction of a right of expulsion in the treaties, coupled with an amendment of Article 48 TEU to make that possible, since this would expose them to the risk of being forced out at some future date.

Moreover, apart from it being politically almost inconceivable, forcing a Member State out of the EU or EMU would inevitably give rise to tremendous legal complexities. This, perhaps, explains why expulsion has not been, and may never be, provided for in the treaties. While, by and large, these complexities would not differ qualitatively from those relating to a Member State's voluntary withdrawal, their resolution would be even more complicated in the case of a Member State's expulsion, because of the risk of legal challenges by disgruntled natural persons, legal entities or even countries, objecting to the loss of the rights that they or their nationals may have acquired from membership of the EU and invoking their legitimate expectation of maintaining these in perpetuity as an obstacle to expulsion. The position has been cogently summarised as follows -

The third and perhaps most serious objection to the assertion or introduction of a collective right of expulsion from the EU or EMU is conceptually similar to one of the more potent objections to the existence of a unilateral right of withdrawal discussed in Part One of this paper. The extent to which asserting such a right would be legally possible must ultimately depend on whether, as a sanction or a remedy, expulsion and its rationale would be consistent with the letter and the spirit of the sanctions and remedies already provided for in the text of the treaties. On the compatibility of a collective right of expulsion with the letter of the treaties, a commentator has rightly argued that 'the EC Treaty provides a set of remedies which can be invoked against the errant State, and there are no grounds for implying any additional remedies in the Treaty'. As discussed above, the exhaustive list of sanctions provided for in the treaties does not include a right to withdraw 'in protest' against a fellow Member State's failure to comply with its treaty obligations; the same is true of expulsion, which is not catered for in the treaties, however serious or repeated a Member State's non-compliance may be and however much its departure may be desired by its partners. On the compatibility of a right of expulsion with the spirit of the treaties, such a right would clearly be irreconcilable with the rationale of the existing body of sanctions for a Member State's infringements of Community law. Even a cursory examination of the sanctions provided for in the treaties shows that their purpose is not to punish a Member State for failing to live up to the expectations of the other Member States, but to encourage it to comply with its treaty obligations. Since expulsion would put a Member State in a situation where it would no longer be able to comply with its obligations, however genuine its remorse for past mistakes and however firm its commitment never again to fail to meet its obligations, such a right would be at odds with the treaties, and in particular with the conciliatory rather than punitive nature of their sanctions for infringements of Community law. From this perspective, it is doubtful whether expulsion is conceivable, even as a measure of last resort, after all other means for turning round an errant Member State have been exhausted. This is because even so restrictive an application of a purported right of expulsion would not obscure the clear discrepancy between the modest effects of the treaty provisions for sanctions and the radical effects of expulsion or, a fortiori, the conflict with the requirement for unanimity in Article 48 TEU for decisions resulting in an amendment of the treaties.

Thus, not only is a collective right of expulsion not provided for in the text of the treaties, but, what is more, the legitimacy of its assertion or introduction would be highly questionable, both legally and conceptually. This main conclusion inevitably raises two further questions. Does the exclusion of a collective right of expulsion deprive the EU of the ultimate deterrent against a Member State's non-compliance, the existence of which would otherwise presumably ensure compliance? And, if so, would there not be a need to introduce such an explicit right in the treaties, so that the risk of a Member State failing to comply with its obligations is countered by the threat of its expulsion? These questions hark back to the fundamental jurisprudential question of whether sanctions are an integral part of any rule of law (even if only implicitly) or whether valid rules of law can exist even in the absence of sanctions for their infringement. An account of the evolution of legal thinking on this matter, and, in particular, of Hart's challenge to Austin's positivist theory of the law as 'the command of the sovereign, backed up by sanctions', lies outside the scope of this paper. However, for those who subscribe to the view that legal rules and sanctions are independent of one another, neither the lack of a possibility of expulsion nor the absence of any other sanction for breaches of Community law obligations is an aberration that some may feel the need to guard against through the assertion of a collective right of expulsion, nor does the lack of sanctions diminish the binding effect of Community law. In any case, the sanctions already provided for in the treaties and the damaging publicity from a Commission decision to commence infringement proceedings against a non-compliant Member State or an ECJ ruling against it are potent enough, even without the legal possibility of the errant Member State's expulsion from the EU or EMU.

B. Indirect avenues of expulsion?

If expulsion from the EU is not an option under the treaties, does that mean that leaving an obstructive Member State behind would be impossible? Are there no indirect avenues for achieving much the same result? In the following there is a brief examination of these possibilities and the likelihood of their application. One possibility would involve the extensive use by the errant Member State's partners of the 'enhanced co-operation procedure'.

The purpose of this procedure, which is set out in Articles 43 to 45 TEU (now replaced by Article 20 of the TEU), is to ensure the asymmetric participation of a group of no fewer than eight Member States in a Treaty-based cooperation mechanism capable of enhancing integration between the Member States that are willing and able to prosecute European unification to its logical conclusion. While promising, as the least 'isolationist' alternative for a recalcitrant Member State, and more advantageous than intergovernmental cooperation outside the EU, the enhanced cooperation procedure has its share of drawbacks. The most obvious of these are that: (i) enhanced cooperation has never been used since its introduction by the Treaty of Amsterdam; (ii) it is not available in all areas of EU policy-making and activities (with Common Foreign and Security Policy being excluded); and (iii) the substantive and procedural conditions provided for its use in the EU Treaty are fairly strict. If it were supplemented by additional measures including extra-EU treaties or other informal action, the enhanced cooperation procedure could represent a genuine alternative to the treaties' decision-making mechanisms, helping marginalise more 'minimalist', less 'integrationist' or otherwise 'uncooperative' Member States.

An alternative and somewhat more radical possibility would be for the mainstream Member States to agree on a new, treaty-based partnership with 'an independent institutional 38 ECB Legal Working Paper Series No 10 December 2009 structure outside the framework of the "old EU"' (effectively, a 'new Union') to be 'worked out, approved and ratified solely by the states participating in this new entity'. While, on the face of it, this alternative might appear ingenious, it would not be ideal. One obvious disadvantage of 'recreating' the treaties with one member fewer is that the new 'replacement' treaty would exist in parallel with the existing treaties, even though these would be no more than empty shells. There would inevitably be appreciable scope for competition between the 'old' Union and the 'new', and the risk of a division within Europe as a result of their rivalry. Besides, the alternative of a new treaty being entered into after its signatories have renounced the existing treaties could only work if all mainstream Member States agreed to leave the errant Member State out of the EU. In all likelihood, such a decision would be thwarted not only by the threatened Member State but also by some of its more Euro-sceptic partners. Ultimately, the likelihood of a 'new' Union coming into being is fairly small, requiring 'a massive political effort on the side of the participating states' and entailing 'yet another Treaty adventure, the outcome of which is totally unpredictable'.

Thus, marginalising a Member State, even if not formally expelling it, would not be impossible, but none of the avenues available for achieving it would be ideal. Persuading a Member State to withdraw, by making use of the proposed exit clause or resorting to the regular Treaty revision procedure, may be the better option.

Implications of a Member State's withdrawal or expulsion for its euro area participation and its use of the euro

Membership of the euro area presupposes membership of the EU and participation in ERMII for at least two years, followed by the candidate Member State's adoption of the euro after a unanimous decision of the Council. In the unlikely event that a Member State withdraws voluntarily or is expelled from the EU, its NCB's membership of the European System of Central Banks (ESCB) and euro area participation would be terminated, with the departing Member State having to restore its old currency or adopt a new one. Restoring a Member State's old currency or adopting a new one would inevitably involve considerable risks and difficulties and entail substantial legal complications, including with regard to the validity and enforceability of outstanding re-denominated contracts between debtors in the withdrawing Member State and their creditors. Successfully resolving the issues arising would necessitate very close cooperation between the departing and the remaining Member States. While it may sound attractive, the idea of using the agreement with the Council provided for in the Lisbon Treaty exit clause for negotiating a departing Member State's continued participation in EMU (even temporarily) after that Member State has withdrawn from the EU is questionable, not least from a public policy perspective. Accepting this would postulate the withdrawing Member State's right to 'pick and choose' which of its treaty obligations it will continue to be bound by (in this case, its EMU obligations) and which it will be released from after its withdrawal from the EU. This would effectively encourage an à la carte approach to EU participation which, while conceptually not that far removed from the opt-out clauses that some Member States have negotiated from the EU Treaty or, more recently, from the Lisbon Treaty, would pose a qualitatively different and arguably intolerable challenge to the EU's integrity and sustainability. Moreover, even if it were accepted that it is possible for a voluntarily withdrawing Member State to negotiate its stay in EMU, it would be difficult to envisage any such agreement allowing a departing Member State that is expelled by its EU partners to stay in EMU. The potential for unequal treatment, depending on the manner of a Member State's departure (in particular whether the departing Member State withdraws voluntarily or is expelled) favours the conclusion that withdrawal from the EU without a parallel, negotiated withdrawal from EMU would be inconceivable. The fact that the requirements for joining the EU (the Copenhagen criteria) differ from those applicable to euro area accession (the Maastricht convergence criteria) is of no relevance. EMU is a sub-set of the EU, which is why the Statute of the European System of Central Banks and of the European Central Bank - lying at the heart of the ESCB and the Eurosystem - is annexed as a Protocol to the EC Treaty. For this reason, a Member State's exit from the EU would automatically posit its exit from EMU.

Whilst a Member State's exit from the EU would, therefore, entail its exit from the euro area, this does not necessarily mean that the euro could no longer circulate in its territory. Indeed, a distinction should be made between a Member State's euro area participation, in an institutional sense, and the circulation of the euro in its territory. Institutionally, a former Member State's NCB could no longer form part of the euro area (i.e. it could not participate in the governance structure and decision-making bodies of the ESCB), at least not without an amendment to the EC Treaty and the Statute of the ESCB. Whether or not a former Member State could continue using the euro is a different, more controversial question, harking back to the 'euroisation' debate (especially if the Member State concerned proposes to use only the euro, which it would obtain from the market). There are two distinct 'euroisation' possibilities, the unilateral and the consensual one. The EU's views on unilateral euroisation by a candidate country for accession to the EU, which would no doubt also apply to Member States with a derogation, have been made public and are summarised in the following excerpt from a 2001 Commission paper:

As for the unilateral adoption of the euro by third countries (as a former Member State would be after its exit from the EU and EMU) there does not appear to be a clearly formulated Commission position, despite the fact that there are several examples of third countries or entities which, even though not having the status of acceding countries, have unilaterally adopted the euro. What is clear is that third countries cannot unilaterally adopt the euro formally, since the EC Treaty includes no procedure for the Council to approve the adoption of the euro by third countries. While former EMU participating Member States would no longer have a domestic currency that they could, strictly speaking, euroise unilaterally, the Commission's and the ECB's position on unilateral euroisation by acceding countries suggests that the EU's policy stance would almost certainly be negative, also in their case.

While a former Member State's unilateral euroisation would thus be highly controversial, this need not be true of a consensual euroisation. Indeed, Article 111(3) EC (now, Article 219 of the TFEU) provides for the possibility of concluding monetary agreements with States or international organisations, such as those entered into with Monaco, San Marino and the Vatican, upon the fulfilment of specific requirements such as cooperation against counterfeiting. Naturally, while consensual euroisation might be a possibility in some cases (following a Member State's voluntary withdrawal from the EU and EMU with the consent of its fellow Member States and following an amendment of the treaties) this need not necessarily be so in other cases (where a Member State has been expelled from the EU and EMU).

Concluding remarks

Europe has moved forward by overcoming a succession of crises. The recent ratification of the Lisbon Treaty is proof of its success at overcoming major constitutional crises, such as Ireland's rejection of the Lisbon Treaty; there is nothing to suggest that it will not also rise to the challenges thrown up by the ongoing financial crisis, without losing either its sense of direction or any of its Members. The Irish ratification of the Lisbon Treaty on 4 October 2009, followed by the Polish and Czech Presidents' ratifications of the Treaty on 10 October and 3 November 2009, respectively, breathed new life into the European integration process, providing the EU with a fresh opportunity to deepen its integration with a greater sense of urgency and renewed energy. However, the importance of a workable consensus on the issues examined in this paper cannot be overstated if unconstructive ambiguities and prejudicial grey areas are to be avoided and if the measures intended to emphasise the voluntary nature of the Member States' commitment to EU's objectives are not to be an obstacle to them. One of the main conclusions of this analysis is that, precise meaning and its consequences should be thought through carefully if it is to bring more clarity to the possibility of and the conditions subject to which Member States may be able to walk away from the Union.

Finally, if changes to the EU's composition, whether by voluntary withdrawal or expulsion (or by the accession of new Member States), are not to lead to crises that are prejudicial to the EU's progress towards further integration, the treaty revision procedure in Article 48 TEU should be overhauled, despite the recent conclusion of the ratification process of the Lisbon Treaty. A simplified treaty revision procedure would do away with the need to introduce a separate exit clause or a right of collective expulsion from the EU and, equally importantly, with the need to overcome crises similar to those triggered by the non-ratification of Treaty amendments or by the vetoing of EU accession requests.