Greece asks for aid
Greece asks for aid EU/IMF package underway
Economic Research Copenhagen, April 2010 1
Overview •
The Greek maelstrom intensifies
•
The terms and practicalities of an EU/IMF aid package
•
...but will it be enough to save Greece?
•
The Greek government needs to do more
•
Expenditure cuts have been most successful
•
Reform of Greek pension system is urgent
•
Great reliance on outside investors is a major source of vulnerability for Greece
•
Cross border exposure to Greece and other PIIGS - exposure to Spain and Italy much larger
•
Thinking the unthinkable – a Greek default
•
Leaving the EMU – how could it be done
2
The Greek maelstrom intensifies •
•
•
•
•
3
On April 23, the prime minister of Greece asked to have the rescue mechanism from the EU and the IMF activated. Originally, the euro countries hoped that simply the agreement to provide loans would be enough to bring Greek government bond yields down to more acceptable levels. With the 2-year Greek government bond yield touching 10% yesterday and Moody’s decision to downgrade the country’s rating from A2 to A3, this is no longer realistic. Hence it was merely a question of time before Greece would request the mechanism to be activated. We believe all of the euro countries will approve the loan package, and the risk of Greece defaulting is thus very limited.
11 % 10
% 11 10
Greek government bond yields
9
9
8
8
7
7
10Y
6
2Y
5
5Y
4
6 5 4
3
3
2
2
1
1
0
December 09
January
February
March
April
0
10
Greece long term bond ratings Moody's S&P Fitch
Rating A3 (neg.) BBB+ (neg.) BBB- (neg.)
Date of change D 22/04/2010 D 16/03/2010 D 09/04/2010
The practicalities of an EU/IMF aid package •
The terms and practicalities for an EU/IMF aid package was outlined by Euro Group finance ministers on April 11:
•
Now that Greece has applied for support, the EU Commission and the ECB will make an assessment of the need. The EU Commission has indicated that the decision can be taken quickly – “it won’t take weeks to make”
•
When the package is finalized other Euro area members will provide EUR 30 bn in bilateral loans in the first year of the agreement – based on capital at the ECB. E.g. Germany will have to lend EUR 8.4 bn to Greece.
•
The support for Greece will last three years.
•
For variable rate loans, interest rates will be 3m Euribor with a 300 bp spread added + a 50 bp service fee. 100 bp will be added if Greece does not repay after 3 years.
•
Fixed rate loans also possible – for example a fixed rate loan with a maturity of 3 years would have an interest rate of 5%.
•
The IMF team arrived in Athens on Wednesday, April 21.
•
It is expected that negotiations with the IMF can be concluded within two weeks.
•
Previously, Greek Minister of Finance Papaconstantinou was quoted for saying that a final text could be ready by May 15.
•
However, with the latest escalation of the crisis, a more compressed time schedule might well be implemented.
Loans from the IMF could amount to EUR 10-15 bn, corresponding to 1100-1600% of quota – a near record high.
•
Conditionality would imply that loans are not paid out at once – but based on progress with the consolidation of public finances.
•
4
...but will it be enough to save Greece? •
As long as the aid package is finalized we do not expect a major problem for Greece in refinancing the redemption of EUR 8.2 bn falling due on May 19. Perhaps through a bridge loan.
•
However, redemptions will be even larger over the coming years.
•
Thus it will be crucial for Greece to regain credibility with markets before the program expires.
•
We take a look at the adjustment need to stabilise debt, as described in the right hand chart.
35
EURbn
EURbn
Scenario's for development in Greek public debt 250
% of GDP
% of GDP
30
30
25
25 Euro
250
200
200
150
150
100
100
50
50
Non euro
20
20
15
15
10
10
5
5
0
0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2028 2030 2034 2037 2040 2067
5
35
0
0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Big fiscal adjustment at 5% yield
Big fiscal adjustment at 10% yield
Baseline
The Greek government needs to do more •
The Euro group pointed to the Greek government’s stability and growth program as the basis for an EU/IMF loan package. This program envisages an adjustment of 10.7% of GDP.
•
With the latest announcement from Eurostat that the Greek budget deficit last year was 13.6% of GDP instead of 12.7% of GDP, the adjustment need has increased correspondingly.
•
Our estimate is that Greece will need to reduce the cyclically adjusted government deficit by 12.7% of GDP by 2015, ie. 2%-points more than envisaged by the government.
•
6
Evidence from tightening episodes in other countries shows that the biggest fiscal adjustments have typically been achieved through expenditure cuts – either in the form of income transfers or government consumption, see next slide.
The Greek Government's Stability and Growth Program 2010-2013 2010 2011 2012 2013 in % of GDP General government deficit 8.7% 5.6% 2.8% 2.0% Total revenues 41.9% 43.5% 45.0% 45.3% Total expenditures 50.6% 49.1% 47.8% 47.3% Fiscal adjustment Due to Revenues Expenditures Memo: % y/y Economic growth Inflation (GDP deflator)
4.0%
3.1%
2.8%
0.8%
2.6% 1.4%
1.6% 1.5%
1.5% 1.3%
0.3% 0.5%
-0.3% 2.0%
1.5% 2.0%
1.9% 1.9%
2.5% 1.9%
Nordea's fiscal adjustment scenario Fiscal adjustment 3.1 3.1 2 2 Growth % y/y -1.0 0.0 0.9 0.9 Inflation % y/y 1.5 1.5 1.8 1.8 Note: Our scenario shows changes in cyclically adjusted primary balance
Source: Greek Ministry of Finance and Nordea
2014
1.5 0.9 1.8
Expenditure cuts have been most successful
7
Of which: Revenue Increase
C yclically-Adjusted Primary Balance
Of which: Primary Expenditure Reduction
Length (Years)
Debt at EndYear
Average Over the At End-Year Five years After End of Adjustment
C ountry (End-Year)
Size
Ireland (1989)
20.0
8.1
11.8
11.0
98.8
4.4
Sweden (2000)
13.3
3.0
10.4
7.0
53.6
3.8
1.1
Finland (2000)
13.3
2.6
10.7
7.0
43.8
7.1
3.7
Sweden (1987)
12.5
7.2
5.3
7.0
...
4.8
0.2
Denmark (1986)
12.3
6.3
6.0
4.0
76.5
6.6
4.3
Greece (1995)
12.1
9.9
2.3
6.0
99.2
4.8
4.1
Israel (1983)
11.1
-0.1
11.2
3.0
158.3
2.6
7.9
Belgium (1998)
11.1
0.4
10.7
15.0
117.1
6.7
6.1
C anada (1999)
10.4
4.0
6.4
14.0
91.4
5.6
3.2
3.6
C yprus (2007)
8.5
7.8
0.7
4.0
59.4
6.1
...
United kingdom (2000)
8.3
3.2
5.1
7.0
40.9
2.9
-0.6 -0.5
Japan (1990)
8.1
7.0
1.1
12.0
69.3
2.7
Italy (1993)
7.9
8.9
-1.0
8.0
115.6
3.0
4.0
Portugal (1985)
7.5
8.3
-0.8
4.0
...
2.6
0.3
Luxembourg (1985)
6.9
5.5
1.4
4.0
10.3
5.1
3.2
Luxembourg (2001)
6.7
5.2
1.6
10.0
6.5
6.1
1.0
Iceland (2006)
6.3
4.6
1.6
4.0
30.1
5.9
...
Netherlands (2000)
6.3
-2.8
9.0
10.0
53.8
4.1
1.0
Denmark (2005)
5.9
2.1
3.8
11.0
36.4
6.4
...
Hong Kong SAR (2005)
5.8
4.4
1.5
4.0
...
1.0
...
Australia (1988)
5.8
0.7
5.1
4.0
22.1
3.7
0.3
New Zealand (1995)
5.8
-1.3
7.1
4.0
46.5
7.1
3.9
Austria (2001)
5.8
1.1
4.6
6.0
67.1
2.2
0.7
Iceland (2000)
5.7
4.9
0.7
6.0
41.0
3.1
1.6
United States (2000)
5.7
3.0
2.6
8.0
55.5
3.7
-1.0
Germany (2000)
5.3
3.4
1.9
9.0
58.7
3.5
-0.7
Germany (1989)
5.3
-0.1
5.4
10.0
40.6
2.7
-0.4
Switzerland (2000)
5.2
4.6
0.6
7.0
51.8
3.6
1.3
C yprus (1994)
5.2
4.2
0.9
3.0
80.7
4.0
0.6
Spain (2006)
5.2
2.5
2.7
11.0
39.6
3.0
...
Mean
8.3
4.0
4.3
7.3
61.7
4.3
1.9
Median
6.8
4.1
3.2
7.0
53.8
3.9
1.1
Source: The IMF
Reform of Greek pension system is urgent 16 % of GDP
Pension expenditures and expected changes
14 12 10 8 6 4 2
Change 2007-60
Pensions Level 2007 Po rtu ga
Change 2007-20
nd
0
Source: The EU Commission 8
I ta ly
a st ri Au
Fr an ce
l
an y G er m
ea Ar ro
Eu
Fi
nl a
s he rla nd
um
N et
Be
lg i
d la n Ire
ai n Sp
G re e
ce
-2
Great reliance on outside investors is a major source of vulnerability for Greece •
IMF data show:
– Greek government debt outstanding held abroad constitutes 99% of Greek GDP
– Of the 99% of GDP held abroad, the cross border holdings by banks constitute 32% of Greek GDP
– Greek government debt outstanding held by domestic deposit institutions constitutes 17.5% of GDP. – Source: (Global Financial Stability Report, April 2010)
•
•
9
-5 -6
% of GDP
Ratio
1.100 1.125
-7
1.150
-8
Current account balance, l.a.
-9
1.175
-10
1.200
-11
1.225
-12
1.250
In addition Greece’s large current account deficit implies that government borrowing needs have to be financed by foreign investors.
-13 -15
1.300
This has proven to be a major source of vulnerability for Greece, as foreign investors are more sensitive to the outlook for public finances.
-16
1.325
Unit labour cost relative to Euro Area, r.a.
-14
01
02
03
04
05
1.275
06
07
08
09
Cross border exposure to Greece and other PIIGS - exposure to Spain and Italy much larger Total foreign claims of selected Euro Area countries on PIIGS and Eastern Europe
600
50 %
Bn USD
45 500
40 35
400
30 300
25 20
200
15 10
100
5 0
0 Germany Greece
10
France Ireland
Italy
Portugal
Italy Spain
Spain Eastern Europe
Austria
PIIGS in % of total, r.a.
Netherlands
Belgium
Eastern Europe in % of total, r.a.
Thinking the unthinkable – a Greek default •
John Lipsky, first deputy managing director at the IMF has ruled out that Greece should leave the euro as part of any consolidation.
•
Similarly we only see a limited risk of a default by Greece. There have been cases where countries have defaulted under an IMF program, but the whole idea of the EU/IMF package is to avoid such a situation.
•
Greece might offer holders of Greek government securities to exchange bonds maturing in 2011 or 2012, but this exchange would be voluntary and not imply any reduction in the net present value for investors, and not trigger a credit event CDS contracts.
•
In the end the probability of default depends on how much hardship the Greek electorate is willing to accept, but in our view the odds for a successful adjustment are quite good since the PASOK government holds a majority in the Greek parliament (160 out of 300 seats) and still has 3½ years to the next election.
•
If the unthinkable should happen, and Greece decided to default, this would not lead to an ejection from the EMU. On the next slide we present the legal arguments.
11
Leaving the EMU – how could it be done •
A legal working paper published by the ECB should merely be seen as a reflection of the options and not a prediction. The main conclusions are:
– Prior to the adoption of the Lisbon Treaty, the EU Treaties did not contain any legal provisions for a country to leave the EU, but a negotiated withdrawal from the EU by a sovereign country would not be legally impossible.
– In the newly adopted Lisbon Treaty, Article 50 explicitly provides for the voluntary exit of a member state. Under this provision a member state would need to inform the EU council of its intention to leave the EU. Subject to approval by the European Parliament, the Council could then approve the withdrawal by qualified majority.
– If the Council failed to approve a secession agreement, the member state can still withdraw two years after the withdrawal notification.
– A member state’s exit from EMU, without a parallel withdrawal from the EU, would be legally inconceivable. – A Member State’s expulsion from the EU or EMU, would be legally next to impossible. – Finally, while a Member State’s membership of the euro area would not survive its exit from the EU, the former member state could still use the euro.
12
Nordea Markets is the name of the Markets departments of Nordea Bank Norge ASA, Nordea Bank AB (publ), Nordea Bank Finland Plc and Nordea Bank Danmark A/S. The information provided herein is intended for background information only and for the sole use of the intended recipient. The views and other information provided herein are the current views of Nordea Markets as of the date of this document and are subject to change without notice. This notice is not an exhaustive description of the described product or the risks related to it, and it should not be relied on as such, nor is it a substitute for the judgement of the recipient. The information provided herein is not intended to constitute and does not constitute investment advice nor is the information intended as an offer or solicitation for the purchase or sale of any financial instrument. The information contained herein has no regard to the specific investment objectives, the financial situation or particular needs of any particular recipient. Relevant and specific professional advice should always be obtained before making any investment or credit decision. It is important to note that past performance is not indicative of future results. Nordea Markets is not and does not purport to be an adviser as to legal, taxation, accounting or regulatory matters in any jurisdiction. This document may not be reproduced, distributed or published for any purpose without the prior written consent from Nordea Markets.
13
Thank you Anders Matzen Euro Area Economist, Nordea Markets +45 33 33 33 18 [email protected]
Economic Research Copenhagen, April 2010 1
Overview •
The Greek maelstrom intensifies
•
The terms and practicalities of an EU/IMF aid package
•
...but will it be enough to save Greece?
•
The Greek government needs to do more
•
Expenditure cuts have been most successful
•
Reform of Greek pension system is urgent
•
Great reliance on outside investors is a major source of vulnerability for Greece
•
Cross border exposure to Greece and other PIIGS - exposure to Spain and Italy much larger
•
Thinking the unthinkable – a Greek default
•
Leaving the EMU – how could it be done
2
The Greek maelstrom intensifies •
•
•
•
•
3
On April 23, the prime minister of Greece asked to have the rescue mechanism from the EU and the IMF activated. Originally, the euro countries hoped that simply the agreement to provide loans would be enough to bring Greek government bond yields down to more acceptable levels. With the 2-year Greek government bond yield touching 10% yesterday and Moody’s decision to downgrade the country’s rating from A2 to A3, this is no longer realistic. Hence it was merely a question of time before Greece would request the mechanism to be activated. We believe all of the euro countries will approve the loan package, and the risk of Greece defaulting is thus very limited.
11 % 10
% 11 10
Greek government bond yields
9
9
8
8
7
7
10Y
6
2Y
5
5Y
4
6 5 4
3
3
2
2
1
1
0
December 09
January
February
March
April
0
10
Greece long term bond ratings Moody's S&P Fitch
Rating A3 (neg.) BBB+ (neg.) BBB- (neg.)
Date of change D 22/04/2010 D 16/03/2010 D 09/04/2010
The practicalities of an EU/IMF aid package •
The terms and practicalities for an EU/IMF aid package was outlined by Euro Group finance ministers on April 11:
•
Now that Greece has applied for support, the EU Commission and the ECB will make an assessment of the need. The EU Commission has indicated that the decision can be taken quickly – “it won’t take weeks to make”
•
When the package is finalized other Euro area members will provide EUR 30 bn in bilateral loans in the first year of the agreement – based on capital at the ECB. E.g. Germany will have to lend EUR 8.4 bn to Greece.
•
The support for Greece will last three years.
•
For variable rate loans, interest rates will be 3m Euribor with a 300 bp spread added + a 50 bp service fee. 100 bp will be added if Greece does not repay after 3 years.
•
Fixed rate loans also possible – for example a fixed rate loan with a maturity of 3 years would have an interest rate of 5%.
•
The IMF team arrived in Athens on Wednesday, April 21.
•
It is expected that negotiations with the IMF can be concluded within two weeks.
•
Previously, Greek Minister of Finance Papaconstantinou was quoted for saying that a final text could be ready by May 15.
•
However, with the latest escalation of the crisis, a more compressed time schedule might well be implemented.
Loans from the IMF could amount to EUR 10-15 bn, corresponding to 1100-1600% of quota – a near record high.
•
Conditionality would imply that loans are not paid out at once – but based on progress with the consolidation of public finances.
•
4
...but will it be enough to save Greece? •
As long as the aid package is finalized we do not expect a major problem for Greece in refinancing the redemption of EUR 8.2 bn falling due on May 19. Perhaps through a bridge loan.
•
However, redemptions will be even larger over the coming years.
•
Thus it will be crucial for Greece to regain credibility with markets before the program expires.
•
We take a look at the adjustment need to stabilise debt, as described in the right hand chart.
35
EURbn
EURbn
Scenario's for development in Greek public debt 250
% of GDP
% of GDP
30
30
25
25 Euro
250
200
200
150
150
100
100
50
50
Non euro
20
20
15
15
10
10
5
5
0
0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2028 2030 2034 2037 2040 2067
5
35
0
0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Big fiscal adjustment at 5% yield
Big fiscal adjustment at 10% yield
Baseline
The Greek government needs to do more •
The Euro group pointed to the Greek government’s stability and growth program as the basis for an EU/IMF loan package. This program envisages an adjustment of 10.7% of GDP.
•
With the latest announcement from Eurostat that the Greek budget deficit last year was 13.6% of GDP instead of 12.7% of GDP, the adjustment need has increased correspondingly.
•
Our estimate is that Greece will need to reduce the cyclically adjusted government deficit by 12.7% of GDP by 2015, ie. 2%-points more than envisaged by the government.
•
6
Evidence from tightening episodes in other countries shows that the biggest fiscal adjustments have typically been achieved through expenditure cuts – either in the form of income transfers or government consumption, see next slide.
The Greek Government's Stability and Growth Program 2010-2013 2010 2011 2012 2013 in % of GDP General government deficit 8.7% 5.6% 2.8% 2.0% Total revenues 41.9% 43.5% 45.0% 45.3% Total expenditures 50.6% 49.1% 47.8% 47.3% Fiscal adjustment Due to Revenues Expenditures Memo: % y/y Economic growth Inflation (GDP deflator)
4.0%
3.1%
2.8%
0.8%
2.6% 1.4%
1.6% 1.5%
1.5% 1.3%
0.3% 0.5%
-0.3% 2.0%
1.5% 2.0%
1.9% 1.9%
2.5% 1.9%
Nordea's fiscal adjustment scenario Fiscal adjustment 3.1 3.1 2 2 Growth % y/y -1.0 0.0 0.9 0.9 Inflation % y/y 1.5 1.5 1.8 1.8 Note: Our scenario shows changes in cyclically adjusted primary balance
Source: Greek Ministry of Finance and Nordea
2014
1.5 0.9 1.8
Expenditure cuts have been most successful
7
Of which: Revenue Increase
C yclically-Adjusted Primary Balance
Of which: Primary Expenditure Reduction
Length (Years)
Debt at EndYear
Average Over the At End-Year Five years After End of Adjustment
C ountry (End-Year)
Size
Ireland (1989)
20.0
8.1
11.8
11.0
98.8
4.4
Sweden (2000)
13.3
3.0
10.4
7.0
53.6
3.8
1.1
Finland (2000)
13.3
2.6
10.7
7.0
43.8
7.1
3.7
Sweden (1987)
12.5
7.2
5.3
7.0
...
4.8
0.2
Denmark (1986)
12.3
6.3
6.0
4.0
76.5
6.6
4.3
Greece (1995)
12.1
9.9
2.3
6.0
99.2
4.8
4.1
Israel (1983)
11.1
-0.1
11.2
3.0
158.3
2.6
7.9
Belgium (1998)
11.1
0.4
10.7
15.0
117.1
6.7
6.1
C anada (1999)
10.4
4.0
6.4
14.0
91.4
5.6
3.2
3.6
C yprus (2007)
8.5
7.8
0.7
4.0
59.4
6.1
...
United kingdom (2000)
8.3
3.2
5.1
7.0
40.9
2.9
-0.6 -0.5
Japan (1990)
8.1
7.0
1.1
12.0
69.3
2.7
Italy (1993)
7.9
8.9
-1.0
8.0
115.6
3.0
4.0
Portugal (1985)
7.5
8.3
-0.8
4.0
...
2.6
0.3
Luxembourg (1985)
6.9
5.5
1.4
4.0
10.3
5.1
3.2
Luxembourg (2001)
6.7
5.2
1.6
10.0
6.5
6.1
1.0
Iceland (2006)
6.3
4.6
1.6
4.0
30.1
5.9
...
Netherlands (2000)
6.3
-2.8
9.0
10.0
53.8
4.1
1.0
Denmark (2005)
5.9
2.1
3.8
11.0
36.4
6.4
...
Hong Kong SAR (2005)
5.8
4.4
1.5
4.0
...
1.0
...
Australia (1988)
5.8
0.7
5.1
4.0
22.1
3.7
0.3
New Zealand (1995)
5.8
-1.3
7.1
4.0
46.5
7.1
3.9
Austria (2001)
5.8
1.1
4.6
6.0
67.1
2.2
0.7
Iceland (2000)
5.7
4.9
0.7
6.0
41.0
3.1
1.6
United States (2000)
5.7
3.0
2.6
8.0
55.5
3.7
-1.0
Germany (2000)
5.3
3.4
1.9
9.0
58.7
3.5
-0.7
Germany (1989)
5.3
-0.1
5.4
10.0
40.6
2.7
-0.4
Switzerland (2000)
5.2
4.6
0.6
7.0
51.8
3.6
1.3
C yprus (1994)
5.2
4.2
0.9
3.0
80.7
4.0
0.6
Spain (2006)
5.2
2.5
2.7
11.0
39.6
3.0
...
Mean
8.3
4.0
4.3
7.3
61.7
4.3
1.9
Median
6.8
4.1
3.2
7.0
53.8
3.9
1.1
Source: The IMF
Reform of Greek pension system is urgent 16 % of GDP
Pension expenditures and expected changes
14 12 10 8 6 4 2
Change 2007-60
Pensions Level 2007 Po rtu ga
Change 2007-20
nd
0
Source: The EU Commission 8
I ta ly
a st ri Au
Fr an ce
l
an y G er m
ea Ar ro
Eu
Fi
nl a
s he rla nd
um
N et
Be
lg i
d la n Ire
ai n Sp
G re e
ce
-2
Great reliance on outside investors is a major source of vulnerability for Greece •
IMF data show:
– Greek government debt outstanding held abroad constitutes 99% of Greek GDP
– Of the 99% of GDP held abroad, the cross border holdings by banks constitute 32% of Greek GDP
– Greek government debt outstanding held by domestic deposit institutions constitutes 17.5% of GDP. – Source: (Global Financial Stability Report, April 2010)
•
•
9
-5 -6
% of GDP
Ratio
1.100 1.125
-7
1.150
-8
Current account balance, l.a.
-9
1.175
-10
1.200
-11
1.225
-12
1.250
In addition Greece’s large current account deficit implies that government borrowing needs have to be financed by foreign investors.
-13 -15
1.300
This has proven to be a major source of vulnerability for Greece, as foreign investors are more sensitive to the outlook for public finances.
-16
1.325
Unit labour cost relative to Euro Area, r.a.
-14
01
02
03
04
05
1.275
06
07
08
09
Cross border exposure to Greece and other PIIGS - exposure to Spain and Italy much larger Total foreign claims of selected Euro Area countries on PIIGS and Eastern Europe
600
50 %
Bn USD
45 500
40 35
400
30 300
25 20
200
15 10
100
5 0
0 Germany Greece
10
France Ireland
Italy
Portugal
Italy Spain
Spain Eastern Europe
Austria
PIIGS in % of total, r.a.
Netherlands
Belgium
Eastern Europe in % of total, r.a.
Thinking the unthinkable – a Greek default •
John Lipsky, first deputy managing director at the IMF has ruled out that Greece should leave the euro as part of any consolidation.
•
Similarly we only see a limited risk of a default by Greece. There have been cases where countries have defaulted under an IMF program, but the whole idea of the EU/IMF package is to avoid such a situation.
•
Greece might offer holders of Greek government securities to exchange bonds maturing in 2011 or 2012, but this exchange would be voluntary and not imply any reduction in the net present value for investors, and not trigger a credit event CDS contracts.
•
In the end the probability of default depends on how much hardship the Greek electorate is willing to accept, but in our view the odds for a successful adjustment are quite good since the PASOK government holds a majority in the Greek parliament (160 out of 300 seats) and still has 3½ years to the next election.
•
If the unthinkable should happen, and Greece decided to default, this would not lead to an ejection from the EMU. On the next slide we present the legal arguments.
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Leaving the EMU – how could it be done •
A legal working paper published by the ECB should merely be seen as a reflection of the options and not a prediction. The main conclusions are:
– Prior to the adoption of the Lisbon Treaty, the EU Treaties did not contain any legal provisions for a country to leave the EU, but a negotiated withdrawal from the EU by a sovereign country would not be legally impossible.
– In the newly adopted Lisbon Treaty, Article 50 explicitly provides for the voluntary exit of a member state. Under this provision a member state would need to inform the EU council of its intention to leave the EU. Subject to approval by the European Parliament, the Council could then approve the withdrawal by qualified majority.
– If the Council failed to approve a secession agreement, the member state can still withdraw two years after the withdrawal notification.
– A member state’s exit from EMU, without a parallel withdrawal from the EU, would be legally inconceivable. – A Member State’s expulsion from the EU or EMU, would be legally next to impossible. – Finally, while a Member State’s membership of the euro area would not survive its exit from the EU, the former member state could still use the euro.
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Thank you Anders Matzen Euro Area Economist, Nordea Markets +45 33 33 33 18 [email protected]
