Paradise lost: can the European union expel countries from the Eurozone?

Author:Dammann, Jens
Position:IV. Expulsion A. The Vienna Convention on the Law of Treaties 2. A Fundamental Change in Circumstances? through V. Conclusion, with footnotes, p. 720-747
  1. A Fundamental Change in Circumstances?

    Even assuming, for the sake of the argument, that the doctrine of rebus sic stantibus is applicable to the question of Eurozone membership, the question remains whether an economic crisis like the one unfolding in Greece qualifies as a fundamental change in circumstances within the meaning of this doctrine. (182)

    As provided in Article 62 of the Vienna Convention, the threshold that such a change must exceed is rather high: circumstances existing at the time of the Treaty's conclusion must have changed in a fundamental way. (183) These circumstances must have formed an essential basis for the parties' agreement; (184) and the relevant change must have transformed the extent of the parties' remaining obligations under the Treaty in a radical fashion. (185) Moreover, these requirements have to be interpreted narrowly, as the doctrine of rebus sic stantibus only applies in rare cases. (186)

    Can one make the case that an economic crisis like the one holding Greece in its grip satisfies these requirements and therefore allows other member states to invoke the clausula rebus sic stantibus? This seems more than dubious. At most, one might try to argue that, for the other Eurozone countries, the Greek crisis brought the necessity to finance ever new rescue packages in order to prevent a Greek insolvency and that the parties failed to foresee this development. However, such a line of reasoning would be flawed for various reasons. To begin with, application of the clausula rebus sic stantibus requires that change in circumstances has made the parties' existing obligations incurred under the treaty more burdensome. (187) However, nothing in the Treaty on the Functioning of the European Union forces member states to participate in the bailout. (188) In fact, the Treaty is particularly clear on this issue. It even contains an explicit anti-bailout clause in Article 125, which provides that "[a] member state shall not be liable for or assume the commitments of ... another member state." (189) While this provision does not stand in the way of voluntary bailouts, (190) it makes it very clear that no member state is under any obligation to participate in such bailouts. (191)

    And indeed, not all member states have participated to the same extent in bailouts. For example, Finland participated in the 2012 bailout, but only after receiving collateral from Greece. (192) The United Kingdom went even further and declined to participate in the first or second Greek bailout on the grounds that it was not part of the Eurozone, (193) though the United Kingdom still ended up having to support Greece indirectly, since the United Kingdom is a member of the IMF. (194)

    Any attempt to cast an economic crisis as a fundamental change in circumstances also faces a second obstacle. By general consensus, those changes that the parties anticipated do not justify the application of the doctrine of rebus sic stantibus. (195) According to some scholars, the application of that doctrine is barred even in those cases, where the parties ought to have anticipated the relevant change. (196) This hurdle proves crucial because it seems farfetched to argue that the member states did not foresee--let alone that they could not have foreseen--the occurrence of a profound economic crisis. After all, why would the member states have included a provision ordering that member states do not have to bail out other member states if they had not correctly foreseen the possibility that some member states would need to be bailed out? Furthermore, all or almost all developed economies at some point experience profound economic crises, and at the time that Greece was admitted to the Eurozone, it was hardly known as an economic powerhouse. Accordingly, an economic crisis like the one in Greece hardly constitutes a unforeseen fundamental change in circumstances as required by the clausula rebus sic stantibus. (197)

  2. Consequences of a Fundamental Change in Circumstances

    Finally, it is not even clear that the clausula rebus sic stantibus offers an appropriate remedy. The parties invoking a fundamental change in circumstances may be able to terminate, withdraw from, or suspend the operation of the relevant treaty, (198) but it is widely thought that they cannot unilaterally change that treaty against the opposition of the other party or parties. (199) Therefore, it is unclear how the clausula rebus sic stantibus should justify a member state's expulsion from the Eurozone. After all, the provisions governing the admission of new member states into the Eurozone form part of the Treaty on the Functioning of the European Union, (200) and no one wishes to terminate, withdraw from, or suspend the operation of that particular Treaty.

    In sum, the clausula rebus sic stantibus simply does not offer a plausible option for expelling Greece from the Eurozone.

    1. Suspension Clause

    Another conceivable basis for an expulsion right with greater prima facie plausibility is the so-called suspension clause in Article 7 of the EU Treaty. Under said provision, the Council--which consists of the representatives of the member states--may suspend certain rights of a member state under the Treaties if that member state has committed a persistent and serious breach of the values listed in Article 2. (201) Because Article 7 allows only the temporary suspension, rather than the permanent elimination, of a member state's rights, (202) this provision could at most serve as a basis for a temporary exclusion from the Eurozone. However, for practical purposes, that would be sufficient; even in the case of Greece, those voices calling for an exit from the Eurozone typically demand a temporary rather than a permanent exit. (203) Moreover, Article 7 does not impose any specific time limit on the suspension of rights.

    Of course, the crucial question is whether Article 7 can be brought to bear on the problem at hand. Any attempt to do so faces two obstacles. First, the application of the suspension clause requires that a member state has violated one of the European Union's fundamental values (204)--a requirement that is rather difficult to meet. Second, it is unpersuasive to argue that a state's membership in the Eurozone constitutes a right within the meaning of Article 7.

  3. A Violation of Fundamental Values

    The application of the suspension clause requires a persistent and serious breach of the values listed in Article 2 of the Treaty on European Union. (205) These values include respect for human dignity, freedom, democracy, equality, the rule of law, and human rights, including the rights of persons belonging to minority groups. (206)

    Obviously, most of these values are in no way touched by the fact that a member state undergoes a severe economic crisis. However, the idea that a member state that constantly and persistently flouts the rules governing the Eurozone shows insufficient respect for the rule of law is not a priori implausible. Of course, various factors suggest that the rule-of-law criterion in Article 7 has to be interpreted rather narrowly. The parties' decision to demand a breach of fundamental values in order for membership to be suspended would be completely circumvented if any persistent and grave violation of EU law were sufficient to justify a suspension of rights. (207)

    Furthermore, the need for a very high threshold is underscored by the fact that the suspension clause is quite narrowly drawn with high procedural safeguards. First of all, the Council, which is composed of representatives of the member states at the ministerial level, (208) has to determine with a four-fifths majority that there is a clear risk of a serious breach of the values listed in Article 2.209 Subsequently, the Council has to verify at regular intervals if the relevant breach persists. (210) If it does persist, the European Council--which is composed of the heads of state or government (211)--may determine the existence of a persistent and serious breach, but only after obtaining the consent of the European Parliament. (212) Only if all these steps have been undertaken may the Council decide to suspend certain of the rights of the member state in question. (213) In making that decision, the Council has to take into account any adverse consequences that such a suspension might have for natural and legal persons. (214) In sum, the suspension procedure is extremely restrictive. If nothing else, this suggests that it represents a means of last resort, to be used very sparingly. Ordinary violations of EU law, even if they are grave and persistent, cannot therefore suffice to suspend a member state's rights.

    Against this backdrop, it is very difficult to argue that the mere failure of a member state to adhere to the limits on budget deficits and government debt set by the Treaty on the Functioning of the European Union and the Stability and Growth Pact suffice to invoke Article 7 of the Treaty European Union. Even before the euro crisis, member states repeatedly and consciously violated the Stability and Growth Pact without being held accountable at all. (215) This has been true even for large member states such as France and Germany. (216) Surely, if these violations were not considered worthy of any sanctions, then the more extensive, but also more understandable, violations of the relevant provisions by a member state in the midst of a profound economic crisis cannot justify the suspension of that member state's rights either, given that the suspension clause is clearly intended as a last resort.

    Of course, none of this implies that a member state's violation of the rules pertaining to the monetary union can never rise to the level of a persistent and serious violation of the rule of law. In fact, one can easily imagine scenarios where a member state's conduct represents a vital threat to the functioning of the Eurozone. For example, a member state might openly...

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