The concept of eurozone breakup is not new, and I have mentioned it before. But now more and more voices warn of this threat. One important observer of European affairs, Gideon Rachman, says that the single currency will indeed eventually break up – and that the euro’s executioner will be Germany. On the other hand a prominent US economist, Barry Eichengreen, says that the euro is an example of a path-dependent historical process that is unlikely to be reversed. None other than Angela Merkel said that “if the euro fails, then Europe fails”. But is this really true?
The markets signal mistrust. Even Mrs. Merkel admits that the eurozone is facing “an exceptionally serious situation”. In any case the possible breakup of the eurozone is a matter of speculation.
That being said, there’s not much discussion on the technicalities of the eurozone breakup, and that is a hugely important aspect. It is very important mainly because of the legal basis of the eurozone and its structural place in the legal framework of the European Union.
Barry Eichengreen again is probably the only person who wrote a whole scientific paper on the subject, claiming that the technical difficulties would be quite formidable. He notes that redenomination in national currencies may pose some real difficulties, especially in determining the scope of redenomination. But his analysis focuses mainly on the exit of a single country or a group of countries from the eurozone, and not on the breakup of the eurozone as a whole.
More recently Wolfgang Münchau and Susanne Mundschenk have written an analysis for Eurointelligence that considers the legal implications of both the exit of a single country from the eurozone, and the breakup of the eurozone altogether. The authors note that the European Treaties have no provision for an exit clause from the euro area, just as there is no provision for an exit from the CAP. They claim that it is virtually impossible for a member state to leave the euro area, devalue, and remain in the EU. They also dismiss the argument that Germany’s persistent trade surplus will eventually cause the collapse of the euro area. But in their paper they do not consider the technicalities of a possible breakup if it occurs.
The truth is that the breakup of the eurozone goes through a Treaty amendment. This may be a simplified procedure (art. 48, para. 6 TEU) since the provisions on economic and monetary policy are in part III of TFEU, and the breakup of the eurozone does not increase the competences conferred on the EU. Such a breakup is only possible through a unanimous decision of the European Council, though. That means that all member States must agree on the dissolution of the Economic and Monetary Union in its present form. The real challenge will be to agree on initial redenomination rates.
However unlikely that is, I would like to point out that there is, indeed, a legal mechanism for the breakup of the eurozone. This breakup will only happen if all Member States agree that the euro is not a sustainable currency. To me it sounds much easier to prevent this breakup from happening in the first place. But should Member States fail to act on the euro crisis, a breakup of the eurozone remains legally and technically possible.
As for the claims that if the euro fails, then Europe fails, I disagree. It is better to have limited, but consensual integration process, than to have secession or atrophy.