EU: Drachma scarecrows and the Myths of Greek Exit

The Telegraph ^ | 5/21/2012 | Ambrose Evans-Pritchard

[bruinbirdman]

We keep hearing that Greece cannot impose exchange and capital controls – as Iceland did – to contain the damage from Drachma Day, restore stability, and prevent a devaluation overshoot.

We hear too that Greece would have to leave the EU if it is ejected from/withdraws from the euro.

Both assertions are wrong.

The European Commission published a study in its 2003 EU Economic Review examining the treaty basis for exchange controls in an emergency.

It concluded that states can indeed put up barriers under the Maastricht Treaty: "Among the actions that can be undertaken when a member state experiences serious balance of payments difficulties, Articles 119 and 120 EC provide for the possibility to reintroduce 'quantitative protective measures' against third countries."

The measures require agreement by the Ecofin council of EU finance ministers, under qualified majority vote (QMV). The can be imposed for six months, and renewed indefinitely.

The work was prepared by a small cellule of French EU officials in Brussels for arcane purposes that have no relevance to today's events. No matter.

As for Greece having to leave the EU. The treaties are opaque. An ECB official – who happens to be Greek – wrote a personal opinion two years ago concluding that Greece would have to leave. "Withdrawal and expulsion from the EU and EMU: some reflections, by Phoebus Athanassiou, December 2009"

"Withdrawal from EMU without a parallel withdrawal from the EU would be legally impossible," he stated.

Actually, the treaties are silent. He developed a series of complex arguments to infer this conclusion, largely based on the intent of the treaty drafters but also drawing on the Vienna Convention on the Law of Treaties. He is perfectly entitled to do so. We all love intellectual stimulation. The rest of us are equally

[mo]

Call their bluff...and let em’ have their Drachma....

[SunkenCiv]

Thanks bruinbirdman.

[DManA]

when a member state experiences serious balance of payments difficulties,

That's not their problem. Their problem is they need to borrow money to live and no one will loan them any more money. And they can't afford to service the debt they already have. They are broke, destitute, and too stupid to fix it.

[Eric in the Ozarks]

This was predicted when the Euro Union was formed.