Leaving 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negotiating a departing Member State's continued participation in EMU (even temporarily) after that Member State has withdrawn from the EU is questionable, not least from a public policy perspective.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).