Merkel's System For Expulsion - Guide To Exiting Euro Zone

GERMAN CHANCELLOR Angela Merkel has become the first European leader to explicitly call for a change in European Union rules to allow states that repeatedly break the blocs economic guidelines to be expelled from the euro zone.

Her comments on this thorny subject are likely to provoke widespread debate as the subject had been taboo until finance minister Wolfgang Schaeuble floated the idea last week, by saying steps should be introduced to allow states to leave the euro zone in extreme cases.

Here are some questions and answers on what Merkel’s strategy is on the euro zone and what lies behind it.

Does Merkel mean euro zone members should be expelled?

It is unlikely that Merkel, or indeed Schaeuble who first raised the idea, wants any member to give up the single currency. That would be a major blow to the euro zone and could even signal the start of its collapse.

Rather, they view the option of an expulsion as a threat to instil more long-term fiscal discipline into euro zone members. That is, in Merkels view, the only way to avoid future crises and stop this one from spiralling out of control.

Is it doable?Under current rules, kicking out a euro zone member does not seem possible. Such a move would require a change in the Lisbon Treaty which incorporates the provisions enshrined in the Maastricht Treaty.

Although the Lisbon Treaty includes an exit clause enabling a state to elect to leave the EU, it is unclear what would happen to that state’s euro membership.

What made her say it?Worry about the wider crisis in the long term. The EMF and the possibility of expelling a euro-zone state are essentially Merkel's ideas for a long-term strategy to get euro zone members to have tougher budget discipline.

The government sees these as the best mechanisms to prevent a wider crisis and avoid endless bailouts of euro-zone states.

Merkel also knows German financial markets and voters would not accept a bailout for Greece or another state. The public would view a bailout as opening the floodgates to other requests for aid and even as the beginning of the end of the euro zone – a scenario the German government wants to avoid at all costs.

Why now?Although any change in the rules required for expulsions is likely to take too long to apply to Greece, the debate has been triggered by the debt crisis there. As the euro remains under pressure and market jitters continue, the need for action from euro zone states to prevent contagion becomes more urgent.

How is the idea being received in Germany?Opinion polls show Germans are increasingly worried about the future of the euro and, against that background, the threat of expelling "repeat offenders" to save the long-term future of the currency goes down well among Germans. Voters there are especially loathe to help Greeks because they think they have been cooking the books for years.