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The Solution is a New Union

Published on , , Sofia

17 climbers are climbing an upright rock, attempting to reach the top, where a marvellous view will reveal for them. Unfortunately, however, all of them are tied with one rope, while some of the climbers are already starting to lose strength and to drop off, thus seriously increasing the pressure over the climbers that are higher, because they will have to bear greater burden and higher pressures. For now the problematic climbers are only three and as a share of the common weight of the 17 are less than one tenth. Who are the 17 climbers? You have probably already guessed - the 17 members of the euro area.

According to a recently published map of the New York Times, one of the weakest climbers, Greece, produces $0.3 trillion gross domestic product and its debt is 166% of it. The country's rescue is estimated currently to 110bn euros for the first bailout programme but another 130bn euros are being discussed. In other words, the overall rescue money is less than 200bn euros. For now, the other two climbers - Ireland and Portugal show, though weak, but a flow of strength. Their situation is not that difficult, although according to the New York Time's map, purely nominally the situation seems as bad: Ireland produces $0.2 trillion GDP and has 109% debts, and the situation of Portugal is pretty much the same - $0.2 trillion GDP and 106% debt. All the 17 climbers though, as well as the external observers, think that the two countries for now have chances to continue climbing.

In the past few weeks, however, the hands and legs of Italy started to soften but this is the third largest economy in the eurozone. Again according to the same map, Italy's GDP is $2.1 trillion, but its debt is 121% of it. Growth perspectives for the next year are close to zero which means that Italy will not be able to produce enough in order to pay its debts. This is now a burden which even the strongest of athletes cannot bear. Germany has a weight of $3.3 trillion GDP and 83% debts, France has a similar weight to that of Italy (2.6 trillion dollars) but less debt - 87% of GDP. Spain is another big economy in the eurozone with $1.4 trillion GDP and the lowest level of debt from the above mentioned - 56%. Until very recently, however, it was thought that it had not worked out enough and would not be able to manage with its own climbing not to mention pulling some of the weaker fellow climbers.

The other climbers, although in good shape, are absolutely incapable to pull anyone else but themselves, as the example of Slovakia showed clearly.

How to redistribute weight?

By detaching, is the most natural answer in climbing to avoid the risk everyone to fall in the precipice. And that will be falling from great heights because all of them have reached indeed enviable heights. So high, that it would be easier for them to climb separately to the top than to go down. No longer is a taboo the issue of expelling eurozone or EU member states. Moreover, this issue is being developed on a very strategic level. In December 2009 the European Central Bank publishes a report on the subject "Withdrawal and Expulsion from the EU and EMU. Some Reflections". There is a kind of irony in the fact that the author of the analysis is Greek - Phoebus Athanassiou, a legal counsel of the European Central Bank (ECB).

Up to the moment this analysis was written the biggest challenge the EU was facing, and to its survival, was the ratification process of the Lisbon Treaty that entered into force on 1 December 2009 after heartbreaking voting in the Czech Parliament, a danger of a second rejection at a referendum in Ireland and problems with the German constitutional court. Somewhere there, by the way, the news that Greece was seriously beautifying its fiscal data began emerging. But two years ago it was hard to suggest what the scale of the disaster would be - a scale that makes the non-ratification of the Lisbon Treaty even a desirable option.

Is it possible a member state to leave the EU or the eurozone?

In fact, before answering this question the analysis puts another one - why this option has not been explicitly stated in the EU Treaties? The report quotes an unnamed author, according to whom there are three reasons why the treaties are silent regarding potential withdrawal of a member state. The first is to avoid putting a question mark on member states' commitment to achieve the shared objectives. The second is that if an option for withdrawal were envisaged that would increase the likelihood of leaving. And the third is that such an option would require a very detailed procedure with the expected consequences from withdrawal.

Nonetheless, one of the novelties introduced with the Lisbon Treaty is in Article 50. In this article the possibility for a voluntary withdrawal is explicitly mentioned. A member state that wants to leave the Union has to inform the European Council about its intention and the Council has to draw guidelines for a withdrawal, and with a qualified majority and the consent of the European Parliament an agreement to be concluded on behalf of the EU. However, this possibility creates some significant problems, described in the report. The first is that although the provided possibility for negotiating a withdrawal agreement, the exit clause stipulates that this is about unilateral withdrawal. In other words, the member state in question just informs the Council and nothing more.

Besides, this clause is appropriate only in case just one or two countries exit at once but not if there is an exodus from the EU. And the third problem is that the clause does not envisage any specific provisions on the requirements for a withdrawal of a member state which has adopted the euro, which in fact is at the moment the hottest topic given the situation with Greece and Italy. According to the ECB's analysis, an exit from the eurozone is practically impossible without leaving the EU. This would be a legal absurd, as it is stipulated in the Lisbon Treaty. The problem is, however, that unlike EU membership, the participation in the Economic and Monetary Union (EMU) evokes certain legal obligations for all member states.

But as the membership in the EMU is much more complex and includes various rights and obligations of the member state and its central bank, its possible leaving must be negotiated and should not be unilateral. This is regarding the voluntary withdrawal. But what are the options for expulsion? The legal contradictions in this case too are many, probably because the entire spirit of the treaties is for a continuous process of deepening integration, where no one even thought that some day expulsion might be wanted. Not accidentally the analysis points out that in the treaties there is a set of sanctions for countries that do not comply with certain parts of the European legislation. These sanctions are aimed at stimulating the countries to comply not to punish them.

Having in mind that the EU started from 6 member states with similar views about the world, their economic development and common objectives, it is not hard to suggest that in spite all the political and economic reasons that were behind past enlargements, an explanation can easily be found why no one presumed that such discrepancies in the system of values could occur that could force a divorce.

Unlike the United Nations Charter, where in Article 6 it is explicitly written what the possibilities are a member of the world organisation to be expelled, such provisions are not available in the EU treaties. The only close to a similar measure is in Article 7 (2, 3) from the Treaty of the EU (TEU), which allows the Council to temporarily suspend some of the rights of a member state, including its voting right in the Council. This provision has been introduced with the Nice treaty and was to be used for the first time against Austria several years ago, when after parliamentary elections a government was formed with the participation of the ultra nationalist Jorg Haider. However, the clause was not applied and later Mr Haider resigned.

Even if we presume that a legal possibility can be found to expel an errant country, that would evoke huge legal complications, Phoebus Athanassiou deems. The possibility, quite real though, should not be underestimated that legal challenges by disgruntled natural persons, legal entities or even countries, objecting to the loss of rights they or their nationals may have acquired from membership of the EU. These challenges would be fully justified, which is why they will be a serious obstacle for expulsion.

There is a roundabout way to isolate an errant member state, which has greater chances, although it also contains some negative elements. In the TEU an option is envisaged a group of countries (no more than eight, though) to created their own, based upon the Treaty, mechanism for enhanced cooperation, which would allow them to deepen the integration among themselves and to continue ahead toward the logical end of the European unification. This is precisely the possibility for the so broadly discussed "Europe at two speeds". Practically, though, this means that no more than 8 countries can do that, as in the initial version of the Lisbon Treaty - the constitution - that possibility was envisaged for nine countries. The euro area consists now of 17 member states, and the entire union has 27 members.

In order to avoid the difficulties that might occur with this option, the analysis presumes another much more radical option - the member states to conclude a new treaty, isolating the errant country. This, however, creates another legal contradiction because thus two European unions will be created with similar legislation, which is a certain way to divide Europe. By the way, the latter argument is groundless because, as it is written in the analysis, the only fact that an expulsion is being considered presupposes some kind of a division. The question is what will be the scale.

Nonetheless, the problem with the euro area remains as difficult because even if it is assumed that not that stressful way could be found an incapable member state to leave the monetary union, this would mean that it will have to restore its old currency or to introduce a new one. But this would inevitably create significant risks and problems, as well as legal complications, including regarding the validity and the legal power of the treaties between the debtors and the creditors of the leaving country. Something of which the macroeconomist Dimitar Ashikov spoke last week in the pilot edition of euOUTside last Saturday (only for the Bulgarian readers).

One of the main conclusions in this analysis is that whenever deliberations start on options to isolate an errant member all possibilities should be very carefully studied, and most of all the consequences. And in order to avoid consequent crises from the withdrawal of one or more members the analysis recommends an overhaul of the treaties, no matter the difficult ratification process of the Lisbon Treaty. A simplified procedure for treaty change could remove the need of introducing a separate exit clause or a right of collective expulsion from the EU. Something which euinside recently proposed, as well as MEP Andrew Duff (ALDE, Britain).

The context

This analysis, written two years ago, finds a very appropriate context these days, moreover that yet at his first news conference after taking the post of a new ECB chief, the Italian Mario Draghi firmly stated that leaving the eurozone was impossible because it was not in the treaties. Although the analysis was written because of the crisis caused by the difficult ratification process of the Lisbon Treaty in the end of 2009, it sounds as if whoever ordered it had said - find a way! Something like this happened last year when at the December European Council a decision was taken for limited changes of the treaties. So limited to avoid the need of holding referenda in those countries where this is constitutionally mandatory. Then the "royal couple" Merkel-Sarkozy yet in October 2010 ordered: find a way to introduce reforms of the economic governance.

At this year's October Council a similar order was received from the same duo - find a way for new changes to introduce even deeper reforms that could mean only one thing - the need of an overhaul exists. The question is what is the legal basis. Yesterday there was a serious discussion about negotiations taking place between France and Germany for a division of the eurozone, which would automatically divide the EU.

This is why it is not a coincidence that it was in Berlin that the European Commission president, the body also called a guardian of the treaties, held a speech he started in German. In it he unequivocally said: "Let us be clear - a divided union will not work!" And again, what an irony that Barroso had to say this on the occasion of the anniversary of the fall of the Berlin wall - the very symbol of Europe's unification that unleashed a wave of reforms and growing prosperity on a continent that was divided for too long.

And more ...

No matter if the legal straw would be found to rescue the eurozone and the EU in general, as it is clear to everyone that if the eurozone would not survive the Union is also doomed, there is also a moral obstacle. On December 9 in Warsaw Croatia will sign its accession treaty to join the EU on 1 July 2013. The biggest purely legal issue is what union is Zagreb going to join with a treaty, the content of which refers to EU of 27 with perspectives to join the eurozone and Schengen? And more - the European Commission recommended this autumn accession negotiations to started with Montenegro and Serbia (if Serbia solves its issues with Kosovo). So, what will be the legal basis for these negotiations? And wouldn't this lead to freezing the negotiations process thus putting at risk the already fragile stability in the Balkans?

As usual lately, the questions are many but the time is less. So, with Italy's borrowing costs reaching 7% it is more than clear that the current situation cannot offer a solution. So, as the leader of the British opposition Labour party, Ed Miliband, suggested - the EU leaders should sit and immediately start negotiating, and not to leave until they finish. Indeed, the EU currently needs a conclave. Right now! Against the backdrop of growing protests of the type "occupy whatever comes to mind", growing uncertainty and unemployment create risks of clashes which we can hardly imagine. This is why it is necessary the leaders to leave everything behind in their national countries and gather together, but really right away!

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