What would a complete or partial failure of the euro mean for the validity of
commercial contracts? An analysis of the likely underlying legislative situation
in such a situation is helpful in looking at this question. The picture may not
be as bleak as first appears, although there will always be uncertainties.
First, a little history. When the euro was introduced in 2002 and the euro
zone Member States (of which there are currently 17) relinquished their own
currencies, EU regulations and national legislation were in place to provide for
continuity of the contracts which were subject to the law of one of the new euro
zone members. These rules prevented one party from using the change of currency
as an excuse to invoke frustration or “force majeure”, or any other argument as
to impossibility of performance, so as to avoid having to perform its
Countries sometimes put in place similar legislation covering contracts
subject to their laws which use another country’s currency. For example, in
1997, the U.S. states of New York, Illinois and California enacted specific laws
providing that contracts using any currency that was substituted or replaced by
the euro would continue for the purposes of their law.
Two Possible Scenarios
As was the case when the euro zone was established, in the event that the
reverse happens and the euro fails completely or is only retained as a valid
currency by some of its current users, it is inevitable that EU and national
legislation will be adopted to seek to deal with the situation.
An individual country leaving the euro zone would, pursuant to legislation,
introduce a new national currency. This new currency law would be very likely to
provide that, for the purposes of that country’s law, the change of currency
would not operate to frustrate or discharge contracts which use the euro. The
national currency (at the appropriate, floating, exchange rate) would simply
replace the euro in these contracts (unless a freedom of choice is left to the
parties). The continuity of euro contracts governed by the law of that country
therefore should not be affected from a legal point of view simply because of
the change. Euro-denominated contracts performed wholly or partly in the
departing country, which were governed by the laws of another country, would not
be affected by the new legislation and would need to be considered separately on
a case-by-case basis. They might contain clauses concerning amendments to or
termination of the contract in the event of a serious supervening event, but the
redenomination of the currency of the departing country may not be sufficient to
trigger such clauses. Nevertheless, a significant devaluation of the new
national currency against the euro (and/or exchange controls introduced as part
of the changeover to the new currency) could render the performance of the
contract uneconomic, or force a company into default and trigger such clauses.
As with the departure of one member, in the event of the total collapse of
the euro zone, there would necessarily be EU-level cooperation and EU and
national legislation put in place to deal with the continuity of contracts
subject to the laws of one of the (former) euro zone states. This legislation
would have to provide for the re-denomination of euro contracts into a given new
currency, setting the rates at which euros would be exchanged into the new
currencies. This would send one back to the past, with a range of currencies all
floating against each other within the old euro zone.
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