I have read plenty of opinions on why Greece should exit the euro, and, better yet, why the country should be kicked out of the union. According to ekathimerini, German Finance Minister Wolfgang Schäuble indicated that Greece "cannot be a bottomless pit," and everyone agrees. However, how the pit is closed is open to debate.
In a hard-hitting interview with the Welt am Sonntag newspaper, Schäuble also said it is up to Greece whether the country can stay in the eurozone as part of its efforts to restore its competitiveness.
I am certain that Mr. Schäuble understands the legal aspects of the union, and his comments are designed for public consumption at home. His remarks imply that if Greece doesn't play along, the country can be forced to exit the union, and that's far from the legal truth. Only Greece can ask to exit, and we're not talking about what's right, but about what's legal.
If it was easy to eject members from the union, it would have been done a long time ago, and that's the reason why no less than three "German ministers pressure Athens over reforms," leading up to the vote, as reported by ekathimerini.
Article 50 of the Lisbon Treaty, also known as the "Exit Clause," was designed to address the membership exit issue. The article states that "any member state may decide to withdraw from the Union in accordance with its own constitutional requirements." What it does not state is that a member, or a group of members, can ask for the expulsion of another member.
The European Central Bank's published a document (pdf) in 2009 titled "Withdrawal and expulsion from the EU and EMU," in which the idea of expelling a member was studied.
Unlike the Charter of the United Nations (UN), Article 6 of which expressly provides for the possibility of a UN Member being expelled for persistently infringing the principles of the Charter, there is no treaty provision at present for a member state to be expelled from the EU or EMU. The closest that Community law comes to recognizing a right of expulsion is Article 7(2) and (3) TEU, allowing the Council to temporarily suspend some of a member state's rights (including its voting rights in the Council) for a 'serious and persistent breach by a member state of the principles mentioned in Article 6(1)' of the EU Treaty. This might be thought of as a preliminary step to the expulsion of a Member State, but it is not the same as its definitive expulsion.
But Articles 6 and 7 refer to Article 2, which in turn addresses the event of a member infringing on human rights, not mishandling fiscal policy.
Article 2: The Union is founded on the values of respect for human dignity, freedom, democracy, equality, the rule of law and respect for human rights, including the rights of persons belonging to minorities. These values are common to the member states in a society in which pluralism, non-discrimination, tolerance, justice, solidarity and equality between women and men prevail.
Although the can will be kicked down the road, the road leads nowhere, and the ongoing patching of fiscal cracks will eventually run its course. Furthermore, the ongoing suggestion that Europe could split into two eurozones, thus solving many problems, is not in line with the legal foundations of the union, and it would be the equivalent of seeking a post-nuptial agreement after the poor party in a marriage hints at divorce.
Adding a bit of intrigue to the current situation, German Finance Minister Wolfgang Schäuble stated that no additional help for Portugal is being considered, as reported by Económico. However Mr. Schäuble was upset that his conversation with Portuguese Finance Minister Vitor Gaspar was secretly recorded and posted on YouTube, indicating that Germany is willing to adjust Portugal's debt, depending on the Greek negotiations. Only if we could listen to every private conversation.
One may even ask why a "Membership Cancellation Clause" triggered by fiscal misdeeds was not incorporated into the treaty. The answer in my mind is simple: If that was the case, nobody would have signed on the dotted line.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.