Geo-Economics and Politics

How can Greece implement capital controls?

Guntram Wolff
Director, Bruegel
Share:
Our Impact
What's the World Economic Forum doing to accelerate action on Geo-Economics and Politics?
The Big Picture
Explore and monitor how Financial and Monetary Systems is affecting economies, industries and global issues
A hand holding a looking glass by a lake
Crowdsource Innovation
Get involved with our crowdsourced digital platform to deliver impact at scale
Stay up to date:

Financial and Monetary Systems

While the exact decision of the Greek government is not yet to my knowledge clearly communicated, it appears that besides a bank holiday, the government intends to impose capital controls. The Guardian reports that for capital control measures to take effect, the Greek cabinet must approve the recommendations of the Greek financial stability council  and a presidential decree is needed.

Legally, capital controls are relatively difficult to justify in EU law. However Article 65(1b) TFEU provides a loophole in the EU treaties. The free movement of capital in the European Union is a fundamental principle codified in the Treaty on the Functioning of the European Union (TFEU); see Article 63(1). While the TFEU allows countries outside the euro area to “take the necessary protective measures” when a sudden balance of payments crisis occurs (Article 144(1)), euro-area countries do not have such a right. Article 65(1b) acknowledges the right of all EU Member States to “take measures which are justified on grounds of public policy or public security”. In addition, Article 65(3) states that such measures “shall not constitute a means of arbitrary discrimination or a disguised restriction on the free movement of capital and payments as defined in Article 63.”

Economically, as I have argued in the case of Cyprus, capital controls are a contradiction in terms to monetary union. A euro is a euro only if it can circulate freely in the entire monetary union. With capital controls, the Greek euro will be worth less than the French or German euro and therefore ceases to be a euro.

The statement by Greek PM Tsipras that Greek deposits are safe is therefore wrong. Their value is already now significantly lower than their face value.

The good news, however, is that capital controls can be reversed. For capital controls to be reversed and Greece to remain in the euro, a necessary condition is that the ECB is ready to provide abundant liquidity to all solvent banks. This is unlikely to happen without prior political agreement in euro group. Like it or not: The limits of monetary union are the limits of political union.

This article was originally published by Bruegel, the Brussels-based think tank. Read the article on their website here. Publication does not imply endorsement of views by the World Economic Forum.

To keep up with the Agenda subscribe to our weekly newsletter.

Author: Guntram Wolff has been the Director of Bruegel since June 2013.

Image: Euro coins are seen in front of a displayed Greece flag. REUTERS/Dado Ruvic.

Don't miss any update on this topic

Create a free account and access your personalized content collection with our latest publications and analyses.

Sign up for free

License and Republishing

World Economic Forum articles may be republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License, and in accordance with our Terms of Use.

The views expressed in this article are those of the author alone and not the World Economic Forum.

Related topics:
Geo-Economics and PoliticsGeographies in DepthFinancial and Monetary Systems
Share:
World Economic Forum logo
Global Agenda

The Agenda Weekly

A weekly update of the most important issues driving the global agenda

Subscribe today

You can unsubscribe at any time using the link in our emails. For more details, review our privacy policy.

Industrial policies are having a moment. Here are 4 examples to explain how they work 

Spencer Feingold and Simon Torkington

July 5, 2024

About Us

Events

Media

Partners & Members

  • Sign in
  • Join Us

Language Editions

Privacy Policy & Terms of Service

© 2024 World Economic Forum