Greece may need a third bailout but would not accept new austerity measures, the Greek finance minister has said.

Greece may need a third bailout but would not accept new austerity measures, the Greek finance minister has said.

Yannis Stournaras said: "If there is need for further support to Greece, it will be in the order of about 10bn euros (£8.6bn; $13.4bn), or much smaller than the previous programmes."

Greece has already received two bailouts totalling about 240bn euros.

Meanwhile, Angela Merkel has warned about writing down any more Greek debt.

Germany's chancellor said a so-called haircut of Greek debt would be bad for the stability of the eurozone, which has seen a return in investor confidence after years of worrying about the future of the single currency following bailouts of several nations - most recently, Cyprus.

"I am expressly warning against a haircut," Mrs Merkel said. "It could trigger a domino effect of uncertainty with the result that the readiness of private investors to invest in the eurozone again falls to nothing."

Her comments come after Germany's finance minister, Wolfgang Schaeuble, said - for the first time - earlier this month that Greece will need another bailout to plug a forthcoming funding gap.

The issue of bailouts is a sensitive one in Germany, where Mrs Merkel faces elections for a third term on 22 September.

Many Germans feel they have already contributed enough to European bailouts.

The International Monetary Fund (IMF) last month estimated Greece would need around 11bn euros in 2014-15.

On Sunday, Mr Stournaras told Greek newspaper Proto Thema that any further bailout would be smaller than the previous two.

But he also warned that Greece would not accept any more forced spending cuts from its partners.

"We are not talking about a new bailout but an economic support package without new [austerity] terms... until 2016, the targets - our obligations - have been set and other measures or targets cannot be required."

The Greek economy has shrunk further than any other in Europe, with bailout money only released on condition that the government imposes cuts and implements restructuring.

It comes after most of the 18-member eurozone countries came out of recession earlier this year.

Greece's troika of lenders - the European Commission, the European Central Bank and the IMF - will review the aid programme in the autumn.

 whembly wrote:
Isn't Greece considered the "canary in the mines" for the Euros?

I thought ya'll be concerned for Italy or Spain.

 Grey Templar wrote:
So how's that one currency system working for ya there Europe?

 sebster wrote:

 whembly wrote:
Isn't Greece considered the "canary in the mines" for the Euros?

I thought ya'll be concerned for Italy or Spain.

Most of the panic pretty much went away as soon as it became clear that the European Central Bank would play the role of last lender. Basically that killed the bank run issue.

There's still major problems, but they're really issues of long run structural improvement now.

Automatically Appended Next Post:

 Grey Templar wrote:
So how's that one currency system working for ya there Europe?

Pretty badly. But then the US' one currency has been a wonderful success for 200 years, so the back of a napkin analysis would say the problem is not with a single currency, but the Euro execution of the concept.

 whembly wrote:
Yeah... been catching up on Greece lately... looks like they'll be okay, but they'll be hurt'n for awhile.

I honestly thought the US currency is more screwed... it goes to show it isn't an exact science eh?

 Grey Templar wrote:
There is a difference between the US and Europe. One is a mostly unified economy, the other is not. Plus we built it from the ground up. Europe tried to shoehorn it over existing systems.

I frankly don't know why they did it. What was wrong with every country having its own currency anyway?

 Grey Templar wrote:
I suppose that is a benefit. but then again the opposite is true. The larger stable economies were inviting that fluctuation upon their own economy by trying their currency to the economy of less stable countries.

I really wonder how the unstable countries talked all the big boys into getting involved in this. It just seems like there was nothing to be gained by doing it for the larger economies like France and Germany.

 whembly wrote:
Well according to wiki, yes:
http://en.wikipedia.org/wiki/Withdrawal_from_the_European_Union

Just that it hasn't happened yet. I guess a country could simply have a referendum to do so?

A Legal Path for Exiting the Euro

While there exists no specific EU law providing for the orderly withdrawal from the EMU and euro, EU law does provide, by by Article 50 of the Treaty on European Union [PDF], for the withdrawal of a member state from the EU itself. This provision, added by the Lisbon Treaty, which was adopted in December 2009, provides the right of EU member states to notify the EU Council of their desire to withdraw from the union without any preconditions. The withdrawal shall be effective two years from the date of notification or from the date of agreement with the council concerning continuing relations between the exiting member state and remaining union. Surprisingly, this provision does not specifically mention the necessary accord of the European Central Bank (ECB) for eurozone members wishing to withdraw. Thus, a departing member state could legally withdraw in two years and one day without any specific agreement concerning ECB-governed currency issues. Practically speaking, however, a concerned member state would most likely pay very close attention to details pertaining to the return of capital contributions and reimbursement of foreign reserve holdings by the ECB. Therefore, complex and perhaps contentious withdrawal negotiations with EU institutions — and in particular, the ECB — seem to be a given for any exiting member state.

While this option may seem somewhat far-fetched, it should be noted that the ECB has itself undertaken preliminary studies of the modalities and, most importantly, legality of EMU and euro withdrawal. In a 2009 study entitled "Withdrawal and Expulsion from the EU and EMU: Some Reflections," the ECB legal staff stated its well considered opinion (although not binding as official policy), that while EU withdrawal would be legal under the explicit terms provided by the Lisbon Treaty, the unilateral withdrawal from the EMU and euro (i.e., without a negotiated agreement with the EU institutions) without simultaneous EU membership withdrawal would be illegal. Thus, a stand-alone withdrawal from the EMU and euro would be legally impossible, as it would be in direct defiance of the "irreversibility" of European EMU. Concerning a much more contentious issue, the ECB staff opined that EU law does not provide for the expulsion of EU members from the union itself.

The Legal Effects of Euro Withdrawal

Clearly, the process of withdrawal from the EMU and the euro currency by a eurozone member is fraught with legal difficulties. These difficulties, however, pale in comparison to the legal quagmire which will ensue concerning the currency of payment for obligations involving both the government and private parties located within the withdrawn state. Will these payments be made in the new currency of the withdrawn nation at some statutorily fixed conversion rate, or will they be required to be made in the former currency? This problem becomes all the more important due to the fact that the euro would still exist after the withdrawal of a current eurozone member state. While the withdrawal from a supranational entity such as the EU and its currency union presents unprecedented legal issues, especially in a world of public international law focused upon the actions of "nation-states," several basic principles contained in the body of the "law of money" can provide some navigational aids for these rather uncharted waters.

Our first legal principle, referred to as lex monetae, or "state theory of money," provides that the law of the nation of the currency in which the debt is expressed shall decide what constitutes the currency. Although the euro is, legally speaking, the currency of the EU, it is also the legal tender of each individual eurozone member. Accordingly, pursuant to the lex monetae principle, an EU nation is free to exercise its sovereign powers to substitute a new national currency for the euro currency and to then, by national law, establish a conversion rate for the exchange of former euro obligations into the new national currency.

While the exercise of this sovereign right may be considered as perfectly legal under the withdrawing state's constitutional structure, such action may very well breach EU treaty provisions, and thus be considered by other member states as a violation of EU law and international obligations if carried out unilaterally.

Second, the "continuity of contracts principle" — which is widely followed throughout the world's major legal systems — would ensure that both domestic and international contracts expressed in the euro would remain valid and enforceable even though the euro may no longer be the legal tender of the obligor under the contract. Assuming that the new currency unit is considered as a "reasonable substitute performance" for the original euro payment provision, this legal principle would, in effect, thwart the classic defenses to contract enforcement such as "impossibility of performance," "frustration of contract" and "commercial impracticability," which might be posited by disgruntled parties. This continuity of contracts principle was in fact imposed upon all EU member states as a matter of law during the introduction of the euro currency. Most nations (and US states) applied this provision within their own legal systems in order to provide stability during the euro transition.

Third, the law applicable to the contract transaction involving withdrawn country obligations (whether private or public) will be key in determining the currency of payment thereunder. The currency of payment and conversion rules for so-called "domestic contracts" within the exiting euro member state — involving local parties and clearly subject to the withdrawing nation's law — would, in application of the lex monetae principle, be submitted to that nation's new currency laws. Most government debt issues are made subject to the debtor nation's laws; thus, it may be assumed that the currency payment situation is clear for such contracts. This is especially true where the parties are located in the withdrawn state and payment is to be effectuated in that nation. However, the situation becomes much less clear for contracts with an international dimension, whether concerning sovereign or private obligations. For contracts involving foreign parties and foreign law clauses entered into outside of the withdrawn nation and calling for payment outside of that nation, it is most likely that foreign courts would strictly apply the euro payment called for in such contracts. This is the case since the euro will still legally exist and, as expressed by several legal scholars, EU law concerning the euro may itself constitute the lex monetae of such "international contracts" denominated in euros. In all events, choice of law clauses and/or conflict of law determinations as to the applicable law will be central to outcomes concerning currency of payment in such situations.

A Negotiated Legal Framework for Withdrawal from the Euro

Assuming the EU authorities stick within a strict interpretation of treaty law provisions — prohibiting EMU and euro withdrawal without simultaneously exiting the EU — it appears absolutely necessary, for obvious political, economic and legal reasons, to provide all concerned with a solid and negotiated exit plan. Thus, this circles back to the provisions of the Lisbon Treaty which added the right of withdrawal from the EU subject to negotiations with the EU Council concerning post-withdrawal relations. Although, as previously mentioned, the withdrawing member may quit the EU without reaching any negotiated agreement with the council, it seems more realistic to assume that the withdrawing nation itself will be highly interested in establishing the most stable economic and monetary environment possible under such destabilizing circumstances. Therefore, the EU and withdrawing member state would have the opportunity to jointly fix — as a matter of EU and national law — the modalities of withdrawal. Though not mentioned in the Lisbon Treaty's withdrawal clause, the ECB would, by necessity, play the leading role in these negotiations. Accordingly, the EU, ECB and departing member state may well be able to fix a negotiated euro conversion rate for the new national currency and impose it within all remaining member states. The more contentious issue (assuming that such could even be considered by the EU authorities) would be the decision concerning the currency of payment for what might be defined as "international contracts" compared to purely "domestic contracts" — at least within the remaining EU. The question remains as to which contracts will be payable in the still existing euro currency, and which will be payable in the new national currency of the departing member state.

Another possibility discussed within would be for the EU to amend existing law to legally permit debt-impaired eurozone nations, so-called "peripheral zone nations," to remain within the union following a very radical adjustment of the EMU system. This plan would create a two currency system, allowing the peripheral eurozone members facing insolvency and unable to regain economic competitiveness to adopt a weaker currency for their respective economies — with the exchange rate for the euro and the weaker currency fixed by EU authorities. A similar arrangement was used during the transition period for the euro currency. These two currencies would then be managed by the ECB, with the weaker euro nation subject to tight oversight of economic and fiscal fundamentals to allow the return to a single currency as soon as economically and fiscally possible.

Regardless of which negotiated option is chosen, this dual legal approach would help to avoid substantial conflict in the event foreign courts should rule that the lex monetae of any particular obligation remained EU law and not that of the re-denominating nation. Such a coordinated approach would go a long way in providing some degree of legal certainty during what would necessarily be a terribly uncertain economic situation.

Finally, none of this euro exit planning will be necessary should European leaders somehow find a way to quickly harmonize economic and fiscal policies to regain eurozone stability. However, if these leaders fail to do so within the near future, there remains the distinct possibility that the "unthinkable" could happen. If so, better to have a well-conceived euro exit plan in place to help smooth over what will be very choppy waters

 loki old fart wrote:
15 trillion in debt. China and Russia moving away from using dollar, when trading oil.

 Grey Templar wrote:
You say that as if no European countries are running massive deficits.

 loki old fart wrote:
How do you see it working ?.

 loki old fart wrote:
If the dollar ceases to be the standard unit of currency when buying oil. That's got to hurt it's credibility. and as a fiat currency, credibility is all it has going for it.
Your money is only worth, what other people think it's worth.

 Grey Templar wrote:
Still, it has nothing to do with single currency vs multiple currency debate.

The issues you describe would happen regardless. They just get compounded by multiple economies sharing a single currency.

 notprop wrote:
Mostly as Grey Templar states, huge state funded benefits and pensions combined with poor tax collection/payment was brought to a head when the Eurozone collapsed and they could get the funding they had become used to.