July 3rd, 2015
Greece strikes again. With what looks like a do-or-die referendum on the horizon, we now have the prospect of a possible legal challenge to any attempt to oust the country from the eurozone.
“The Greek government will make use of all our legal rights,” proclaimed the finance minister, Yanis Varoufakis, according to The Daily Telegraph.
We are taking advice and will certainly consider an injunction at the European Court of Justice. The EU treaties make no provision for euro exit and we refuse to accept it. Our membership is not negotiable.
But, can a hypothetical Grexit decision adopted by the EU institutions be legally challenged?
Silence is golden
Clarifications are in order. First of all, one has to bear in mind that membership of the EU and being a member state participating in the eurozone, are two different situations. Therefore, what appears to be at stake (so far) is Greece’s continued eurozone membership, depending on the outcome of Sunday’s referendum.
The Greek government is right about the silence of the founding treaties. The founding treaties (both the Treaty on the Functioning of the European Union and the Treaty of the European Union) as they stand do not contemplate a country’s exit, or provide for the expulsion of a member state.
To be more precise, the only specific situation addressed is the application to become a member state (Article 49 of the Treaty on European Union (TEU)) and the withdrawal from the EU. Article 50 TEU, meanwhile, codifies the right of any member state to decide to withdraw from the European Union in accordance with its own constitutional provisions – the process a possible Brexit would follow.
Withdrawal, nevertheless, is not automatic. It requires that the EU negotiates and concludes an agreement with the state in question and setting out the arrangements of withdrawal, including taking account of the framework of its future relationship with the Union. The scenario of an exit of the eurozone following a failure to meet commitments imposed by the member states is not mentioned at all.
So, what decision would Greece be challenging? It would be a decision adopted by the EU institutions and the Eurogroup finance ministers to force a Greek exit of the eurozone due to its default on fulfilling the obligations attached to its participation in the monetary union (criteria laid down in Article 140.1 of the Treaty of the Function of the European Union) and the conditions attached to Greece’s bailout program.
Greece would then still be an EU member state but it will have to revert to the drachma or adopt a new currency. Nevertheless, as mentioned, there is no explicit legal basis for such a decision. One can argue that the failure to fulfil the eurozone commitments would amount to a serious violation of the founding treaties, and that it is possible to adopt the decision based on the principles embodied in the treaties. But the fact is that the treaties would need to be amended in order to provide for this.
Needless to say, this is unchartered territory for the EU and thus the legal consequences are uncertain. Since an exit from the eurozone by one country can have serious consequences for the EU and other member states, everything would speak in favour of a negotiated exit rather than a decision imposed and automatic withdrawal. Indeed, if other member states are directly affected by the decision, this could open up the EU to legal action from them.
Greece is talking about the possibility of a court injunction against the EU institutions to block any exit from the eurozone. In the hypothetical (and highly unlikely event) that they pursue this course of action, what would be the legal avenue to challenge it?
Greece could initiate an action of annulment against the decision, based on the standard grounds for judicial review. This could be a lack of competence; infringement of an essential procedural requirement; infringement of EU treaties or of any rule of law relating to their application; or misuse of powers.
Then the European Court of Justice would need to settle the case in light of the principles of EU law. For sure, there will be other problems related to the interpretation and evolution of the EU. To put it simply though, the ECJ may indeed annul the act concerned if it is deemed to be contrary to EU law.
Playing for time
We might draw the following conclusion. If a provision, such as Article 50 TEU, which deals explicitly and in detail with (voluntary) exit from the EU, does not foresee the circumstances outlined above, then it would be far-fetched to assume that this complex scenario was implicitly dealt with by its wording.
There is simply no clear-cut response based on the interpretation of the founding treaties as to which of the different standpoints is the legally correct one. That level of uncertainty might give Greece the encouragement to float the possibility of a challenge, and if nothing else it delivers the prospect of a drawn out legal battle that struggles to reach a satisfactory conclusion – but which would probably still buy a bucketful of bargaining time.