Any country leaving euro zone must settle bill first: ECB's Draghi | Hacker News Reader

Any country leaving euro zone must settle bill first: ECB's Draghi

reuters.com

45 pointscinquemb62 comments

My understanding of how withdrawal from the EU works is that a country's withdrawal occurs 2 years after they invoke the Article 50 process regardless of whether a final agreement has been made with the EU. Is this not correct? If it is correct, how can the ECB make this statement without it essentially being a threat of war?

Edit - many below have noted that leaving the Eurozone and leaving the EU are distinctly different. I disagree. As I understand the EU charter, there is currently no way to leave the Eurozone without also leaving the Union. From Wikipedia, this is actually the exact position that Draghi espouses:

"Regarding your question on withdrawing from the euro without leaving the EU, this possibility is not foreseen in the Treaties. The Treaty of Lisbon does not include this possibility, precisely because of the irreversibility of the move to the third stage of EMU for Member States."

http://www.ecb.europa.eu/pub/pdf/other/20121107_morganti.en....

I'm reading "must" as meaning "or else we'll declare that you've defaulted on your loans". It's unlikely that Germany would invade Italy or Greece in order to seek loan repayments, but it's quite likely that such a declaration would be ruinous for their economies.

The economies of these countries have already been ruined by ECB policies - that is why they are (and have been) discussing leaving the EU. Britain is the first of many, in my opinion, and their economy was strong relative to others in the EU who are being screwed.

It appears to me that the EU is finally learning what the USA learned long ago: economic policy is sovereignty. If you cannot control your own economy then you are subordinate to who can: the states are subordinate to the federal government just like the lesser EU countries (Greece, Italy) are subordinate to France and Germany.

Leaving the Euro zone has nothing to do with leaving the EU. Italy and Greece have borrowed too much money from Germany and want a way out of it. At the moment the EU seem rather keen to stay together against Britain and against a hostile sounding US president

the accepted mechanism for leaving the Eurozone involves leaving the EU via Article 50 (same as the UK is doing)

alternatives include unilateral withdrawal, a treaty change (impossible), or a council vote (difficult as they don't want it to happen)

see https://acelg.blogactiv.eu/2013/03/22/how-to-exit-the-eurozo... for a more detailed version

You do realize the US was the driving force behind the creation and cohesion of the EU ?

It seems to me that lack of US support might turn out to be very, very bad for cohesion in the EU rather than good.

No. The money might have been from the US. But the creation of the CEE, then later the EU was born of the will of European leaders. Martin Schultz had listened to the US but they weren't the driving force.

> economic policy is sovereignty

Wat? It's a free market. What are you on about?

EU member states and the US are mixed economies. EU countries are at various levels of command and market, dependent on nation (though policy exists to prevent direct public ownership in some areas). The US is generally considered "more free" than many if not all EU members.

Economic policy exists and is implemented. Much argument in the mainstream lies on how much command or freedom is required but no major party argues for either extreme. At least not publicly (open NHS privatisation would be suicide for the Tory party for instance).

Greece ruined its own economy through corruption, nepotism and mass tax avoidance. They joined the Eurozone after re-submitting statistics 3 times. Does this[1] look like a healthy economy to you?

1 - https://en.wikipedia.org/wiki/Greek_Financial_Audit,_2004

Not least because their militaries have so atrophied under the aegis of NATO that they would be scarce able to occupy a single province were a European war to break out.

And since that is the real reason that the EU welfare state is possible, they can't actually create an army without creating a revolution.

EU withdrawal isn't necessarily the question here, however, rather Eurozone withdrawal.

You're confusing two different things: the EU and the Eurozone.

The Eurozone is simply the currency union of several European states. The EU is the political union. Many, but not all, EU states are also members of the Eurozone.

The implementation of Article 50 and the two-year negotiation and withdrawal period pertain to the EU and not the Eurozone, of which the UK is not part. The two-year period can be extended up to a year by unanimous agreement.

As far as I am aware, there is currently no way to leave the Eurozone without also leaving the EU.

As noted below there is currently no mechanism, but that doesn't mean there wouldn't be one agreed if a country actually wanted to leave

I agree completely. Of course, rather than rewrite the EU treaties or make exceptions for countries that want to leave the Eurozone, the more likely thing to happen will be the same thing that happened in the USA when a couple countries (see: states) wanted to leave the Union back in the 1800s.

Well you can simply fail the requirements to be in he Euro zone :)

I'm curious how he figures a nation leaving the Eurozone would be 'required' to pay off their debts first. Wouldn't the debts just carry over anyway?

It's not like a country leaving would necessarily default on their loans, just like staying in the Eurozone doesn't ensure timely payment of loans.

Good luck enforcing this, especially when multiple countries vote for nationalist governments...

Its actually pretty easy to enforce if you still need a trade partner. We'll just embargo your goods at the dock and charge you daily storage fees. (We as in countries exacting their pound of flesh).

If you don't want an activity to occur, you must disincentivize it financially.

And how do you ensure compliance when half the Eurozone wants to exit? Yes, you can exact revenge against one rogue member, but several at the same time?

Not to mention, ruining their economy also ensures you won't get paid. Will private creditors stand for that?

That is not at all clear Mike. Even the French nationalists have dropped their calls to leave. This sounds opinion based

Really?

http://ici.radio-canada.ca/nouvelle/1012240/allemagne-marine...

The plan to drop out of the EU was removed from the FN's website because it was the one measure that was too unpopular with their voter base. Of course, it may just be for appearances, but I guarantee you that any Frexit plan would start up a shitstorm the likes of which have never been seen, and I wouldn't feel safe in the Elysée

http://www.frontnational.com/le-projet-de-marine-le-pen/poli...

That's their up to date position concerning Europe. They're calling for an end to the euro, a reintroduction of national currencies, and end to the Schengen zone (national sovereignty over borders), and article 50 of the Lisbon treaty is specifically mentioned...

You're right though, their page concerning a referendum to outright exit has been archived.

They can exit, but they would lose the richer part that stayed to trade in and buy their goods. It's a mess. The private creditors will probably want the opposite of exit, stability and more money, so they would be against any exits.

Have you not seen the negative financial consequences Britain has experienced from Brexit? Their currency has lost its strength and companies are looking at moving out. It's not all sugar plum fairies and nationalism.

As he studies economics he is probably aware of quarterly GDP growth rates across the EU, including 2016/7 + projections.

Or is GDP "sugar plum fairies and nationalism."?

GDP is a poor reflection of quality of life. The US GDP is "healthy", yet the middle class continues to evaporate and people keep ODing in rural areas from no future prospects.

EDIT: I suppose its okay to be poor if you were the one to make the decision. I hope for an educated electorate in the future.

So your original post was in regard to negative financial consequences, not quality of life. So far the UK has far exceeded expectations since Brexit especially compared to EU countries.

Luckily you have articulated and agreed with one of the main drivers behind Brexit. Quality of life is not dictated by GDP. Brits were repeatedly warned of the potential economic (short and long-term) consequences of Brexit (short term turned out to be absolutely incorrect) but decided having full sovereignty was worth it. They decided Brexit would lead to a better quality of life even if it meant a weaker economy.

> I hope for an educated electorate in the future.

It's not about the electorate being educated/not educated. Part of the problem is that the uneducated working class hasn't benefited as much as the educated/elites in society.

Part of why globalism was pushed, is the idea that by outsourcing/eliminated manufacturing and other blue collar work, our society could become more educated, and focus on an 'information' based economy. What wasn't anticipated is just how many people would be left behind, due to many factors including inequality, rising education costs, and then the fact that not all blue collar workers are cut out for university/office jobs.

Anyhow, both globalism and protectionism are valid economic policies, depending on what you want the outcome to be. My personal opinion - both are highly flawed, but no one is ready for anything more progressive.

Wow, that's quite the personal attack there. One of the things we learn in Economics is short run versus long run. Yes, Brexit is causing and will continue to cause a great deal of short run pain for Britain, but in the long run I believe it will prove to be the better choice. The problem is that we all want things to be great and pain-free in the short run, and in the long run. But almost by definition that isn't possible. There are always trade-offs. If you over consume today on credit, you will be paying a future premium for the short run easy living.

The point is, attacking someone personally, for their opinion that the long run gain will outweigh the short run pain of Brexit makes you look less informed, and more like someone who (without critical thought) believes the media propaganda: which focuses exclusively on the short run pain of Brexit.

Read up.

Also: the EU is clearly imploding. Anyone with half a brain can see it is so. It was pretty clear from the outset that the long term viability of the Union was quite tenuous. I'm surprised it has lasted this long, honestly.

What negative consequences? A slight drop in their currency?

The point of them exiting is to reclaim blue-collar jobs through protectionist policies. Not entirely progressive, but it'll likely accomplish that singular goal.

No, it's not all sugar plum fairies, but the electorate decided they'd prefer protectionism and nationalism to the status quo, they want blue collar jobs, not to maximize GDP or the exchange rate.

Edit - I should also add, nowhere did I mention what I thought is the best course of action. The fact is, there's a growing movement to leave the EU. Draghi is making threats. I question the legality and practical application of these threats. Maybe someday I'll write a blog post or something about Europe and economics. For now I'm done school and working on a business of mine.

As the other poster said as well, protectionism isn't contrary to economic orthodoxy. It's just not considered particularly progressive.

>Not to mention, ruining their economy also ensures you won't get paid. Will private creditors stand for that?

No, it really doesn't. It may incite a war, but it won't ensure you don't get paid. See: post-WWI.

> And how do you ensure compliance when half the Eurozone wants to exit?

Half the Eurozone? Last time I've checked, Britain wasn't half the Eurozone. Even better, Britain has never been part of the Eurozone, so what exactly are you thinking about Mike?

Do you really know the topic at hand? Mind you, it's OK to give your opinion without knowing the topic; but it's also OK to point out that the above is wrong and based on misinformation.

EU != Eurozone

P.S.: I'm sorry I've stalked your profile for exactly 2 minutes in order to get some context of who I am talking to. You claim to be studying economics, yet you fail to understand the difference between the EU and the Eurozone - being the latter purely economic and the former mainly political. I have also noted you are very keen on commenting about EU disintegration and passing biased opinions as facts (https://news.ycombinator.com/item?id=13406733).

What's your agenda, Mike?

P.S.2: Ok, just spent 2 more minutes (I just scrolled down your last 4-5 comments) and I know now what's your agenda.

I understand he is not referring to the whole of the country's debt, but to the debt of the Italian central bank to the ECB accumulated through payments within the EU.

The country's debt would be converted to the new currency of the country if it has been issued under the local law of that country, which I think for Italy would pretty much always be the case. If it is issued under a foreign law, then it will be up to the courts of that foreign country to decide but it is likely they decide that euro means euro, not lira (except if the language in the debt says something like "euro or whatever is the legal currency in Rome"). In neither case would it mean an acceleration of the debt, which would only happen in a default.

It seems like they are preparing for more exits, the world has changed a lot in one year.

Fortunately if the EU breaks apart, the 800 billion euro debt to Germany will be just enough to buy lunch.

I think the big question is the Italian elections of 2018. I understand the 5* movment is already pretty much the strongest political party. If they take over the parliament, this may mean the exit of the EU or euro. The Netherlands are probably close too, with elections in March this year, though I understand Wilders is unlikely to have enough seats to take power. Le Pen in France is unlikely to make its break through at the elections this year, but it is not inconcievable in 5 years.

I am of the opinion that the days of the EU are numbered. High unemployment, slow growth, combined with African & Middle-East immigration and Muslim fundamentalism are going to put increasing pressure on traditional social-democrat parties, and with this a general momentum (Brexit, Trump). It may be that the UK might enjoy the status or independant safe heaven when it all happens and investors run to the door and that Brexit turns out to be a blessing in disguise.

Extremely interesting times indeed. Massive political changes will always involve a certain amount of pain, but I believe the writing has been on the wall since 2008 and from political actions taken since.

The problem as I see it, is that the EU is trying to stop the tide. I believe this will fail due to the sheer amount of frustration felt by many of the populations who have not necessarily received or appreciated the globalisation as it has been implemented so far.

Unfortunately for the EU, the only changes that could save itself are antithetical to its hardcore believers and leaders who are in charge. Those who are looking to turn Europe into essentially one country (sounds crazy, but that has been the long and relatively successful game from the beginning), will not budge on a few key issues which are vital to their end game. The David Cameron negotiation was an example of this. If the EU had dropped Freedom of Movement, UK would have almost certainly remained.

Ideology vs pragmatism. Old story.

Rather, the EU is in a deadlock. It is stuck with a partial integration. The only solution that would save it, i.e. complete the integration and make it a federal government, is now impossible in the current political climate. So it is left being a collection of laws and treaties with no clear leadership and direction of travel, and therefore will keep accumulating grievances without being able to do anything about them.

Yes I think you are right about their current situation.

The federal goal however is never what the people of Europe were sold. This mission was essentially hidden to the people of the countries as it was sold as a trade union. They likely knew that the people of these countries would be almost completely opposed to the United State of Europe and so very slowly and quietly implemented measures to achieve it. With the new calls for an EU Army one step closer to this I think we will see greater resistance to the grander project.

If the federalists give up on their hidden dream of the Europe becoming a single country, they can save the EU.

Are leaving euro and leaving EU the same thing? Can a country leave EU but keep the euro?

UK was lucky to retain its currency independence.

No, they are separate things. There are non-EU states that use the Euro as a currency, which demonstrates that EU membership is not a necessity. The practicalities of a seceding member state retaining the Euro would probably be fraught with difficulties, though.

As far as I can tell, "keeping the Euro" would simply involve for the country to declare the Euro legal tender. Even if the EU wanted to prevent that, it's not clear to me how it would.

That does not mean that the country would have a say in Euro governance (controlling the mount of Euro "printed"), but the ECB is fairly independent anyway.

According to this list, several smaller non-EU countries are using the Euro already (and several countries worldwide are using the Dollar, including Zimbabwe—pretty sure they don't get invites to FOMC meetings): https://qz.com/260980/meet-the-countries-that-dont-use-their...

But I think it is unlikely to go that way. Countries would either leave the euro and remain in the EU, or leave both. Monetary independance is high on the agenda of pretty much every populist party in Europe.

> Can a country leave EU but keep the euro?

Technically, yes, although you'd probably lose your seat on ECB. It's not like you can be stopped from using whatever currency you want; Kosovo and Montenegro have unilaterally adopted the euro, much as some countries (eg, Zimbabwe) use the US dollar. Of course, you have zero control over monetary policy, but then, just ask Greece how much control they have as an official member. :)

As a practical matter, however, it's hard to imagine. Most of the reasons why a country would leave the EU would involve wanting more control, and a big part of that is likely to be wanting your own currency.

> UK was lucky to retain its currency independence.

it wasn't luck, it was years of politicians and the population ignoring EU Commission funded pressure groups saying "all your financial services will move, all your business will move, Britain will be poorer"

sound familiar?

our politicians may be incompetent, but they weren't incompetent enough to join the Euro

Europe is actually looking like a drug dealer. They give to countries like Poland "free" funds that are not required, and when you say you want to leave, they brag that your dose worthed a lot more.

Being french, but seeing french predating companies (SG, orange, carrouf, auchan, go sport, decathlon, campanile, renault, vinci, valeo...) setting themselves in Poland with EU funds and destroying local economies (fr & pl) makes me want to puke.

I fucking hate THIS europa.

I don't hate europa, I love my polish wife as much as she loves me. I am just pissed off that the we let private interests rule our countries.

Well, now that Trump is elected, I know americans will be as much fucked in the arsch as we are. lol

At least now, we are not alone to be fucked

Surprised to see this at the top of the page. Doubt HN is a good place to discuss this.

Agreed. I flagged it. Political issues without a technology aspect are not HN topics. I expect a lot of people will be upvoting political issues over the next few days.

Is there a high-quality discussion of this on reddit/r/worldnews or some other area of reddit? Absent that I don't think you'll do better than what I'm seeing here, realistically.

The only interesting things in this world are how Rust can do it better and how to negociate stock options in the silicon valley.

It's rarely a high-quality discussion when people who loudly profess their contempt for serious students and practitioners of the social sciences and humanities go on to make broad, confident claims about international relations, economics, and political philosophy.

It's like a homeopathy forum discussing a medical research paper.

I think you would be surprised by the diversity of HN readers. It has a much broader audience than just technologists.

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