William Fry breakfast briefing explores implications of a country leaving the Eurozone
9th February 2012:
“While the US economic outlook has firmed slightly in recent months, growth expectations in Europe have been hit hard by the debt crisis, with the euro area now likely back in recession” – said Simon Barry, Chief Economist, Republic of Ireland, Ulster Bank, this morning at a William Fry breakfast briefing titled, ‘Eurozone Challenges: Legal Implications’.
“With GDP growth likely to be around 0.5% this year, Ireland is set to out-perform the Eurozone in 2012. Ireland had a return to positive GDP growth in the first three-quarters of 2011 reflecting the boost from ongoing expansion in exports, and a continuation of growth in the internationally-traded sectors of the economy will provide support again over the coming year. Prospects for exports are also supported by the improvements in Ireland’s competitiveness over the past couple of years which help contain the negative impact of a weaker European economy” – Mr Barry told over 150 business professionals attending the briefing.
“However, despite indications lately of some stabilisation in the euro area, the sharp deterioration in European growth prospects will make it very hard for Irish growth momentum to improve this year. Moreover, the pace of overall growth will not be strong enough to support a recovery in domestic demand, including employment for example. However, over time, export-led growth will have a stabilising effect on the domestic economy.” Mr Barry added.
Commenting on the possibility of a second bailout for Ireland, Mr Barry said: “At one level, the need for a second bailout just doesn’t arise at present. The state has no requirement for cash in the near future. What does arise is the need for Ireland to return to funding markets at some point in 2013. Therefore, the next 15 months are critically important for Ireland’s economy and perceptions of credit-worthiness.”
Speaking about the legal implications of a European Union withdrawal or expulsion, Cormac Little, Competition and Regulation Partner at William Fry said: “A member state may withdraw from the European Union, but only in accordance with that country’s domestic constitution. Therefore, Ireland would need to hold a referendum to pass the decision. In relation to expulsion from the EU and EMU, there is no law provision for expelling a Member State. The closest Treaty provision with regard to this is the temporary suspension of voting and other rights in extreme scenarios.”
Also commenting on the consequences of a Eurozone exit, Eoin Caulfield, Financial Institutions Partner at William Fry said: “There are a number of consequences which would face a Eurozone member in a withdrawal scenario. A new currency would need to be created and there would have to be transition arrangements. It would be difficult to achieve overnight. The currency would, most likely, be far weaker and exposed to tariffs and exchange controls. There would be significant contractual complications, leading to litigation and potential insolvencies.”
This mornings William Fry breakfast briefing was part of the firms spring / summer breakfast briefing series. For information on further briefings please click here.
