In? Out? In between? A Greek legal riddle for EU

Brussels: The president of the European Commission, Jean-Claude Juncker, has told Greeks that saying 'No' to a bailout deal would be a vote to ditch the euro. Greece's Finance Minister Yanis Varoufakis has said Greece had no intention of quitting and cannot be forced out.

The conflict is driving the European Union (EU) into legal limbo and no one has a clear answer as to what could happen next.

The government in Greece, where a majority of people say they want to retain the euro currency and their 35-year-old membership of the European Union, correctly points out that neither the treaty creating the now 19-member euro zone nor the agreement binding the 28 member states of the EU, contains provisions for expelling any country.

Only the European Union treaty that came into force in 2009 imagines any departure, and that only when a state asks to leave.

In constructing the euro, European leaders were anxious to underline the message that the new currency was forever. The question that has now arisen is what happens if member state breaks the rules.

Even determining such a breach is problematic.

On Monday a senior European Central Bank official said that a Greek exit from the euro could not be ruled out, especially if voters backed the government in a referendum on Sunday and rejected creditors' offer of cash in return for budget cuts.

The leftist government in Greece, elected in January with a mandate to end austerity imposed as a condition for bailout funds, has infuriated its partners by refusing to accept new terms. That means its programme runs out on Tuesday, just when an International Monetary Fund loan matures. Athens now says it will not make the payment.

The prospect of default has jeopardized Greece's access to euros under the control of the ECB in Frankfurt. Officials speculate that the Washington-based IMF and the ECB will delay actions that could trigger an abrupt cut-off of euros to the Greek banking system, at least until after Sunday's referendum.

On Monday, Greece imposed capital controls to stem the flow of cash out of the country as it looks for short-term monetary stability. If the situation persists, however, notably beyond July 20 when Greece must repay bonds held by the ECB itself, euro zone institutions may find it even more difficult to keep supplying Greece with cash.

PARALLEL CURRENCY?

European officials have said for some time that this could oblige the Greek government to start paying bills with alternatives to cash, such as some form of IOU, that might be denominated in euros but would be hard to spend and worth much less..

Technically and legally challenging, those affected might sue for payment in euros. Over time this could lead to a return to a form of national currency such as a new drachma.

In a formal sense, Greece could remain in the euro zone.

But the Greek government has made clear that it does not want another currency.

Other euro zone states are reluctant to see Greece leave the bloc, partly for fear of rekindling investor suspicion that the currency area could break up and partly because they would face heavy losses on the value of loans to Greece.

The Athens government has insisted that Greece will remain in the euro and has threatened legal challenges to any action aimed at expelling it. Some legal experts have suggested that Greece could even challenge moves to halt its access to euros under the terms of the monetary union.

Until the result of the referendum, which the government has said it will respect, the political context may remain too uncertain for meaningful discussion of how to resolve the financial and legal quandary.

Lawyers are already pondering ways to overcome the conundrums of the Greek case.

A collaborative solution will be hard to produce quickly in the climate of mutual mistrust created by five months of rollercoaster negotiations between Athens and its partners.

In a mark of that exasperation, at least some officials in euro zone states have spoken privately of a need, despite the lack of clear EU legal provisions, to threaten Greece with expulsion.