Is the Euro a One Way Street? Two Views

TWO OPINIONS ON THE IRREVERSIBILITY OF THE EURO: COMMENTS BY AN ECONOMICS PROFESSOR AND THE RESPONSE FROM A LAW PROFESSOR

by Franco Bruni and Giovanni Tuzet, Respectively Dept. of Economics and Dept. of Law, Bocconi
Translated by Alex Foti

The right way could be to insert an opt-in clause: you are not obliged to join the euro, but if you do, it’s costly to get out, similar to when a country goes insolvent

By Franco Bruni
In Sarfatti25’s last issue, Giovanni Tuzet posits the philosophical and juridical problem of the euro’s supposed irreversibility. From an economic point of view, the BCE has taken on itself the responsibility to prevent speculation from destroying the euro, by pushing interest spreads on sovereign debt to unsustainable levels, which do not reflect differences in the quality of various national debts.

However, irreversibility should be rooted in the conviction by European governments that playing with exchange rates is either self-damaging or impossible. The reaction of cross-border trade to currency fluctuations in such an integrated economic area is uncertain, slow and sometimes perverse. Today exchange rates are mainly moved by capital movements, set in motion by myopic speculative strategies that damage trade, investment, and cross-industry and cross-country allocation. With floating currencies Europe would be more economically unstable, with lower growth and employment. Who’s been able, for instance, to demonstrate that the UK has profited from its monetary autonomy and achieved better economic performance through currency devaluation? The British have their reasons to do better than the eurozone, but the pound is caught between racing on one hand after the dollar, and on the other after the euro.

Conversely, one can ask whether, as the Maastricht Treaty says, adopting the euro is really “compulsory” for all EU members, at least down the road, so that after the Lisbon revision (article 50), the only way to exit the euro is to leave the EU. There’s at least one good reason to say yes, this is the case, and another to say no, that’s not the case.

The answer is yes if one thinks that the Single Market is at the basis of the EU and that currency swings and exchange rate risk could undermine it, because they distort competition and hinder the regular flow of trade, savings, investment. The answer is no, if one considers that a significant part of the EU has no desire to join the euro for now, and if one really want to deepen economic and political integration, it’s better to do it within the eurozone through the existing mechanisms of “strengthened cooperation”.

If one gives sufficient weight to reasons for the no, it’s best to end the hypocrisy that all EU members, save the UK and Denmark which have an explicit opt-out clause, are on the way to enter the euro. On the other hand, by giving all countries an explicit opt-in clause, a two-speed Europe would come into being, where the first speed would accelerate the European integration process. After that, once a country has “willingly” joined the euro, in order to leave it would have to go through a procedure similar to a country going bankrupt. A procedure and a negotiation, between the country and the EU, which could end, although in a costly way, with the country leaving the eurozone, and shift from the first to second speed, while remaining in the EU.


There is an "a simili " argument: if one can leave the EU, one can also leave the euro. But there is also an a contrary argument: either you take the whole EU package, or you leave.

By Giovanni Tuzet
I want to reply to Franco Bruni’s rejoinder to a previous article of mine, since he gives me the opportunity to better explain what I meant and comment his observations.

First of all, let me say that my doubts were not about the euro in itself, which I find worth defending. My intent was not to fan the flames of populism, but rather to clarify what is meant when one says the euro is “irreversible”. I argued that is was a matter of juridical constraint, and now Bruni correctly reminds us its economic rationale (especially the problem of flexible exchange rates).

That said, the question remains whether it’s possible to exit the euro without leaving the EU. I noted there is a problem of legal interpretation of the Treaties (in addition to the political issues involved). So, if it is true that the Treaties do not explicitly rule out such possibility, it’s uncertain whether one should legally argue a simili or a contrario. In other words, there is a legal vacuum in the Treaties and it is unclear how one should go about filling it.

By arguing a simili, one could say that, given the possibility of exiting the EU (as per article 50 of the EU Treat revised in Lisbon) and given the intent to safeguard the political sovereignty of states, by analogy one could also exit the euro. So one could envisage an exit procedure similar to that required for leaving the EU. Technically, it would be an a fortiori argument: we should enable a less weighty exit (only from the euro), if we already allow a more weighty one (leaving the EU altogether)

By arguing a contrario, one could instead invoke the spirit of Maastricht on economic integration and say that leaving the euro is not allowed, because it’s a take-it-or-leave it deal: either you buy the whole package or you stay out (with exceptions, such as the opt-out granted to the UK, which should remain).

Summing up to the extreme, on the one hand, the legal vacuum would be filled by giving more autonomy to member states, on the other, it would be filled by giving greater importance to economic integration within the Single Market.

This line of reasoning is applicable to existing law (de jure condito), not to the kind of law it would be desirable to have (de jure condendo). In the latter case, once should ponder the considerations made by Bruni on the opportunity of having a two-speed Europe, modifying the Treaties if needed. But absent such revision of the Treaties, the doubts I have outlined still remain.

Lastly, on the hypocrisy lamented by Bruni on the current situation, I wouldn’t really know what to add, other than this: the law has always had to deal with balance of power considerations and de facto situations. The law, in order to be enforced, needs might, if persuasion is not enough. On the other hand, the costs of its enforcement are sometimes higher than the benefits. In those cases, it’s not unreasonable to tolerate de facto situations that are (partly) divergent from what it is desirable.