The moment the euro became reversible


However this story ends (and we have no idea what the next few hours will bring), Sunday 12 July will go down as a landmark moment in European history — alongside Rome in 1957, Maastricht in 1992 and Cannes in 2011.

For the first time, the leaders of the 19-member euro area officially discussed plans for the departure of one of their members. According to the draft proposals handed by the eurogroup (the finance ministers) to their leaders for their overnight meeting, among the clauses to be debated was one worded as follows:

In case no agreement could be reached, Greece should be offered swift negotiations on a time-out from the euro area, with possible debt restructuring.

It is difficult to overstate the significance of this. For its entire life, the euro was conceived as a currency from which there could be no exit. This was not accidental: the disasters that befell the Exchange Rate Mechanism in the early 1990s convinced European leaders that the only way to create a lasting single currency was never, ever, to countenance anyone leaving it. The euro was “irreversible”, to use the word Mario Draghi has frequently used.

Except, tonight in Brussels it transpired that it is far from irreversible. That euro finance ministers are now actively discussing giving Greece a “time-out” from the currency.

Now, one should insert a major note of caution at this stage. The clause quoted above was not agreed by all the euro members here in Brussels. It was put into square brackets, meaning it is yet to be agreed by all member states. It may well be excised by the time the leaders have honed the draft document away to produce their final statement.

Nonetheless, it was on the table. And that means that to some extent, the genie is now out of the bottle. Brussels is officially discussing how to engineer Greece’s departure. The euro is not irreversible. Clearly, they will not do “whatever it takes” to keep it together.

The big question now — beyond whether there actually is a Grexit — is how markets react. After all, since the euro is now no longer an irreversible currency but a collection of nations tied into a currency from which they could, indeed, leave — in other words, a fixed exchange rate system — do markets begin making bets about that happening? Do they ask questions about Spain, or Italy, too?

Even on top of the specific Greek issues (and the scale of compromises they may be forced to seek) this is a big moment for Europe and its leaders. They have taken a step into the unknown.

PS The FT has the whole eurogroup document (as of 4pm) on its website [pdf]

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