x Abu Dhabi, UAETuesday 25 July 2017

Loosening lips on a Greek euro exit

While it may have become commonplace for diplomats to discuss Greece leaving the euro zone, the practicalities are far more complicated than many outside observers acknowledge.

Greek police detain an anti-austerity protester during an operation to remove a small group of European demonstrators from central Syntagma square in Athens.
Greek police detain an anti-austerity protester during an operation to remove a small group of European demonstrators from central Syntagma square in Athens.

BRUSSELS // A year ago, it was nearly impossible to get a diplomat in Brussels to talk about the possibility of Greece leaving the euro zone. Now, it is the opening to most conversations.

But while it may have become commonplace to discuss a Greek exit, the practicalities are far more complicated than many outside observers acknowledge.

It is not even clear Greece can leave the common currency. The European Union's Lisbon Treaty does not make any such provision - it only considers a country leaving the EU.

Theoretically, a country cannot be forced out of the bloc - it has to decide of its own accord whether it wants to stay.

But with the announcement yesterday that Greece would have to return to the polls later in June after politicians had failed to form a new government, the country could be left with no choice but to leave the euro zone.

Greece remains without a government since its inconclusive election May 6 left parliament split between supporters and opponents of a European bailout package reviled by Greeks for imposing deep wage, pension and spending cuts. Polls show the leftist Syriza party, which rejects the bailout and placed second in last week's vote, is now on course to win.

When asked whether it was legally possible under the EU treaties to force Greece out of the 27-country union, one eurozone diplomat replied: "In theory it's not, but it's a bit like the drummer in the band - if the band doesn't like the drummer, there are ways of getting rid of the drummer."

The diplomat added a caveat and warned that everyone had to think seriously about the ramifications.

"I'm saying it may be doable, but in this case it could mean the band breaks up and never plays again."

The tone from the European Commission, the EU's executive, has shifted too.

On Monday, its spokeswoman Pia Ahrenhilde-Hansen said: "We wish Greece will remain in the euro and we hope Greece will remain in the euro ... but it must respect its commitments.

"Greece has its future in its own hands and it is really up to Greece to see what the response should be," she said.

Ireland's central bank chief and European Central Bank policymaker, Patrick Honohan, said at the weekend that a Greek exit would not be attractive.

"Technically, it can be managed," he told reporters at a conference in Estonia. "It would be a knock to the confidence for the euro area as a whole ... It is not necessarily fatal, but it is not attractive."

Article 50 of the Lisbon Treaty is the relevant piece of legislation should an EU country wish to withdraw.

It says that if such a decision is taken, an agreement would have to be drawn up with the other 26 member states. That would have to be approved by a qualified majority of EU countries and be backed by the European Parliament.

The rules would appear to leave the decision in the hands of the departing country. But when asked if that were the case during a meeting in Brussels last week, Wolfgang Schaeuble, the German finance minister, said it was not necessarily so.

Life could be made uncomfortable for Greece, which could involve shutting off financing, not just from the euro zone's European Financial Stability Facility (EFSF) bailout fund but from the European Central Bank too. Already there are signs of that sort of pressure being applied to Athens.

Last week, the EFSF agreed to disburse the latest tranche of aid to Greece, a €5.2 billion (Dh24.5bn) payment, but retained €1bn of the total, saying it was not immediately necessary.

Diplomats are worried, however, that talk about Greece leaving the euro or the EU is increasing the likelihood of such an eventuality, without taking into account the consequences.

One complaint is that the vast majority of the decisions have been in the hands of finance ministers and euro zone treasury departments who have a tendency to look at the raw numbers and not at the broader social and political implications.

"We're in danger of driving a country over the edge without really stopping to think what it could all mean," said a senior official from a euro zone country.

"I'm not hearing sufficient discussion of what this means for Greece as a society, or for peace and security in Europe."

As well as concern about the potential for severe financial and social breakdown in Greece as a result of leaving or being forced out of the euro zone, the official mentioned the risk of unchecked migration, the threat of a rise in right-wing or violent political movements, or even a military coup.

"Is it controllable? We have to think more broadly. What is really going to happen?" he said.