Change EU treaty so coun­tries can leave the eu­ro­zone

Financial Mirror (Cyprus) - - FRONT PAGE -

Af­ter five months of ag­o­nis­ing ne­go­ti­a­tions, the eu­ro­zone head of state, the Greek and sev­eral na­tional par­lia­ments paved the way to an agree­ment on a third bailout pack­age. It will in­clude tough re­forms like cut­ting pen­sions and in­creas­ing taxes in ex­change for a fur­ther EUR 86 bln of fi­nanc­ing over three years.

Is this third res­cue pack­age fi­nal act in this Greek Un­for­tu­nately not. On the agree­ing on this com­pro­mise re­ally the tragedy? con­trary, of po­lit­i­cal re­forms for cash only means kick­ing the can down the road. This does not solve the cen­tral prob­lem that Greece has to run a sus­tain­able bud­get meet­ing the rules set by the Euro­pean Mon­e­tary Union. And with this com­pro­mise, Greece has to rely on for­eign help from the EU and the IMF be­yond the fore­see­able fu­ture.

So, what would be a sus­tain­able so­lu­tion to the Greek euro cri­sis? It is a cen­tral con­struc­tion fault of the Euro­pean Treaty that nei­ther an exit nor an ex­pul­sion from the Euro­pean Mon­e­tary Union is pos­si­ble. Nearly ev­ery pri­vate or­gan­i­sa­tion – be it a choir or a po­lit­i­cal party – has rules on how to leave the or­gan­i­sa­tion or how to be ex­pelled in the case of some wrong­do­ing. The euro bloc has nei­ther.

Thus, I rec­om­mend that the Euro­pean Union re­vise the Treaty to en­able both exit and ex­pul­sion from EMU. If not Greece, sooner or later another coun­try will want to leave the eu­ro­zone. And in fact, no one can pre­vent a sov­er­eign state from do­ing so. A clear set of rules would merely min­imise the neg­a­tive im­pact of the un­cer­tainty that would arise from a coun­try leav­ing the eu­ro­zone.

In­tro­duc­ing a right to ex­pel is even more im­por­tant than a right to exit. With that pos­si­bil­ity at hand, the Greek cri­sis could have been solved much ear­lier. What is the cur­rent threat from euro fi­nance min­is­ters if a cri­sis state does not carry out the re­forms agreed upon? They can only stop the fi­nan­cial as­sis­tance.

But un­for­tu­nately, this is no threat at all since as a con­se­quence, the cri­sis state would be forced to de­fault on its debt, re­sult­ing in huge fi­nan­cial losses for the re­main­ing euro mem­bers. And this is ex­actly the game Alexis Tsipras has been play­ing. He knows quite well that the Ger­man chan­cel­lor An­gela Merkel would have a hard time ex­plain­ing to the Ger­man peo­ple that Greece will not pay back much of the debt it owes Ger­many. Only the threat of ex­pul­sion is an ef­fec­tive one.

For ex­am­ple, from the very be­gin­ning of its ex­is­tence, the In­ter­na­tional Mon­e­tary Fund has in­tro­duced the right to ex­pel a coun­try that does not pay back its debt. It is called com­pul­sory with­drawal (ar­ti­cle 26 of the IMF’s Ar­ti­cles of Agree­ment).

The cen­tral prob­lem of the eu­ro­zone is that it lacks tools to ad­e­quately deal with cri­sis states that are not will­ing to carry out eco­nomic re­forms. Even if the Greek cri­sis is solved, the next euro slump is wait­ing around the cor­ner – be it in five, ten or 20 years.

To weath­erise the eu­ro­zone ship, it is ab­so­lutely es­sen­tial that the Euro­pean Treaties be re­vised to in­tro­duce the right of ev­ery euro state to exit EMU and to es­tab­lish the right of the euro mem­bers to ex­pel a state that does not fol­low the rules.

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