There is no doubt that the forthcoming Greek elections are, at the same time, a quasi referendum for the position of Greece within Europe and for the daily life of millions of Greek citizens. At the same time, it will have profound consequences for the future of the Eurozone. The last polls, two weeks before the elections, show that the anti-MoU Radical Left party may not finish first but still will amass a considerable number of votes and thus the forming of a pro-MoU government will by no means be easy. Let us look at some legal questions that may arise in the day after the elections.
First, some say, both within and outside Greece, that an exit from the Eurozone is not possible because the EU Treaties do not provide for it and that the only legally possible option is to exit from the EU altogether. First of all, the use of the term “exit” is rather unfortunate. The Eurozone is not a specific international organisation or a Union within the Union, from which somebody can “exit”. It is more appropriate to speak of a number of Treaty provisions which pertain to the Member States, in respect of which the Council has decided under Article 139 TFEU that they fulfil the necessary conditions for the adoption of the Euro and take part in the so-called Third Stage of the Economic and Monetary Union (EMU).
So, the EMU provisions of the Treaty are no different from other provisions which refer to other Union policies. Yet we speak of no “exit” from the Internal Market or from the competition provisions of the Treaty and so on. It is, therefore, more correct simply to speak of specific “violations” of the Treaty provisions, which are punishable under the Treaty. For example, if Greece were to violate Article 128 TFEU and issue a new currency, this does not legally mean any “exit” whatsoever and, of course, the EMU provisions of the Treaty are fully applicable to Greece. So the governor of the Central Bank of Greece will continue to be a member of the ECB Governing Council and Greece will continue to have the rights and obligations that the EMU provisions of the Treaty provide for. Such a development would, of course, mean that the institutions of the Union might decide to put in motion the procedures for the imposition of fines or penalties under Articles 260 and 126 TFEU.
Nevertheless, apart from the legal terminology and reality, there is always the political reality. The history of European integration teaches us that legal obstacles never stood in the way of certain political developments. So it is not true that something cannot happen simply because it is not expressly provided for in the Treaty. Sweden has neither an exception nor an opt-out status, like Denmark and the UK, and is in reality in constant breach of its obligation to pursue its participation in the third stage of the EMU and, therefore, to enter the Eurozone, yet the European Commission never opened a proceeding against Sweden. If ever there is consensus in Europe and in Greece (unilateral action by Greece is practically impossible and unthinkable) that Greece ought to abandon the Euro, then it will not be difficult to find the right legal accommodation to arrive at this result.
Second, if Greece were ever to breach the basic lines of the MoU it has signed with the other Eurozone Member States or one or more of the respective intergovernmental treaties, such as the EMS Treaty or the EFSF Framework Agreement, while such a thing would mean the end of the financial support for the Greek State with catastrophic consequences, legally, it would amount to a breach of a public international law duty and of the specific treaties but not to a wholesale violation of the basic European Treaties. Those texts formally lie outside Union law (they are intergovernmental treaties), even if aiming at safeguarding the common currency. The fact that this new framework includes the European Commission and the ECB does not change the above conclusion, since these two institutions act not in their capacity as supranational Union organs, but rather as agents for the Member States which are signatory to those intergovernmental treaties. The same goes for the European Court of Justice, which again is used by some of these treaties not as the supranational court of the Union that we are all accustomed with, but rather as a dispute resolution mechanism within that specific context.
Therefore, if Greece were to abandon the MoU route, both the Commission and the ECB would still be bound to act within the limits of EU law and their respective powers in the context of the Union legal order and the Member States cannot “block” the implementation of the Union policies in Greece, since the Union relies on an autonomous legal order that does not belong to any of its Member States or even to all Member States taken together. Of course, the violation of the MoU and of the intergovernmental treaties would most likely amount also to a violation of Council decisions addressed to Greece under Articles 126 and 136 TFEU. This is a different matter and this breach will have to be pursued by the appropriate Union institutions within the limits of EU law (Articles 126, 260 TFEU, Article 6 of Regulation 1164/1994), after the applicable procedures have been followed.
In that respect, of crucial importance is the question whether in the above case the ECB would continue to provide liquidity to the Greek banks. Does it mean that the breach of Greece’s obligations under the MoU would result in the ECB discontinuing that lifeline for the Greek banking sector? Legally speaking, not necessarily. As a Union institution, the ECB must act within the limits of the Treaties. The ECB will exercise its discretion and adopt the most appropriate measures in order to protect the common currency, but at the same time it will have to comply with Article 18.1 of the Statute of the European System of Central Banks and of the ECB, which provides that credit should be based on “adequate collateral” in order to ensure protection of the Eurosystem from losses in the conduct of credit operations. Would the ECB continue to regard Greek State bonds adequate collateral? There is a lot of discretionary decision-making in the hands of the ECB, so nothing can be excluded.
Third, let us try to see what might happen after the June elections in Greece. The new government will have to deal with the problem of spending money for wages, pensions and for the basic needs of the state and at the same time to ensure that the conditions are such that the ECB continues offering liquidity to the Greek banks. In our view, there are five possibilities/scenarios:
a) The Greek government agrees with its MoU partners to comply with its basic obligations but at the same time there are some growth-enhancing measures and other pill-sweeteners.
b) An anti-MoU government fails to reach agreement on a renegotiation of the MoU with its partners and Greece falls into arrears. The Member States/creditors are unlikely in that case to continue the financial support due to the systemic moral risks involved. In that case, Greece proceeds to the imposition of more cuts to wages and pensions to the extent that a primary surplus has not yet been achieved (this is no longer so distant for Greece). Naturally, the already existing austerity measures cannot be withdrawn, otherwise there will never be a primary surplus.
c) Greece falls into arrears or attempts a negotiation with its public and private creditors, with a view to agreeing on another “haircut” and, at the same time, in order to avoid further cuts, decides that wages and pensions will be paid only in part in euros, with a percentage being paid in promissory notes or bonds. Such paper can be declared a lawful method of payment and an acceptable method of paying taxes (tax-based bonds).
d) In scenarios (b) and (c), it is not inconceivable that the MoU parties might decide to continue the financial support only to the extent that Greece’s debt is serviced. Essentially, the financial support would be suspended only as to the part that Greece needs to finance its primary deficit.
e) In scenarios (b), (c) and (d), the ECB may decide to discontinue offering liquidity to the Greek banks. In that case, the game will be over and Greece will have to enter into speedy negotiations in order to adopt a new currency and possibly formally to abandon the Euro. This could be achieved with a Greece-Protocol to be attached to the TFEU, following the Danish and UK examples.
As we see, there is no black or white scenario in legal terms and there are many different scenarios about Greece’s status in the EU, ranging between the MoU and “Grexit”. In political and economic terms, however, there is only a single truth for Greece: a long and arduous process of reorganisation of its economy and its administrative apparatus, so as to give a promise of mid and long-term recovery to its youth.
 See by analogy Case C-196/09, Paul Miles and Others v. European Schools, Judgment of 14 June 2011, para. 42.