Save the Euro? Could be Illegal

Written by Jeff Cimbalo on Tuesday October 25, 2011

At some point in this crisis, the eurozone is going to have to decide whether it wants to have a solvent euro for the moment in part of the Union, or a lawful and democratic Union in all of it.

The EU is groping for ways to bail out a list of states that includes Greece, Italy, Portugal, Spain, or Ireland - or potentially all of them. The trouble is that since 1998, such action is expressly prohibited by the Maastricht Treaty.

There, both the Union and member states agreed that both “shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project.”

An article of the 2009 Lisbon Treaty, 122(2), seems to give some leeway to deviate from Maastricht in the case of “exceptional occurrences beyond its control.”

But that hardly describes the situation in Greece. Greece, to take one example, has been on notice since at least 2004 that the European Commission considers its budget deficit “excessive.” This is hardly an exceptional occurrence, nor is it one beyond Greece’s control.

Yet the EU is now considering a plan to guarantee about 20% of future eurozone member states’ bonds - potentially $1.4 trillion worth of sovereign debt by this artifice. If the Union’s proposed action were legal under the treaties, the language prohibiting assuming commitments of other member states would be meaningless. This is only the most recent demonstration of the flair the Union has for accomplishing indirectly what is directly contrary to the treaties.