• Border checks and capital controls also being considered
  • Athens elections taking place on Sunday with result 50/50

By Adrian Lowery and Julian Gavaghan

PUBLISHED: 06:28 EST, 12 June 2012 | UPDATED: 14:14 EST, 12 June 2012


EU finance chiefs today admitted holding contingency ‘discussions’ about possibly putting limits on Greek cash machines to stop mass withdrawals if Greece quits the euro.

European Commission officials also discussed imposing border checks and capital controls in a bid to stop a possible flight of funds.

‘There are indeed discussions, and we are asked to clarify what is foreseen in EU treaties,’ said Commission spokesman Olivier Bailly following a raft of press reports claiming this had happened.

He refused to reveal the precise details of the talks but admitted some of these ideas had been discussed under ‘disaster scenarios’.

Fragile: Any strong indication that Greece was about to leave the euro would see a run on bank deposits

Fragile: Any strong indication that Greece was about to leave the euro would see a run on bank deposits

He said the commission is ‘providing information about EU laws regarding treaties,’ that mean capital ‘restrictions are possible’ on the grounds of ‘public order and public security.’

However, he stressed that the commission was not planing on the basis that Greece would leave the euro depending on the outcome of elections on Sunday.

‘At the commission, there is no plan whatsoever pre-supposing a Greek exit from the eurozone,’ Mr Bailly added.

‘If there are people within member states or elsewhere who are studying risks, that's their responsibility.’

Stock markets across Europe rose this morning but in Asia there were drops following Wall Street losses Stock markets across Europe rose this morning but in Asia there were drops following Wall Street losses

Greek elections on Sunday could see angry voters back radical left-wing parties opposed to austerity – pushing Athens closer to an exit from the euro.

James Hickman, managing director of Caxton FX, the contingency plan in case Greece drops out of the single currency is 'hardly surprising'.

THE 'JOG' ON SPANISH AND GREEK BANKS

While scenes of a Northern-Rock style run with savers queuing outside branches to pull out cash have not emerged, both Spain and Greece have reported substantial increases in money being pulled out of banks - in what has been called a 'bank jog'.

European Central Bank figures show Greek deposits down by 17 per cent in the year to the end of March 2012, and in the ten days after the 6 May election, savers were reported to have pulled 3bn out of Greek banks.

Meanwhile, figures published by Spain’s central bank showed €97bn was pulled out of the country in the first three months of the year – around a 10th of the country’s GDP.

The slow motion flight of deposits has come as savers and firms worry about not just banks' safety but also their countries’ continuing membership of the euro.

Greek depositors fearing a Greek exit from the euro – which would see citizens rushing to get hold of their euro deposits - have been pulling billions of euros out of the nation’s banks.

Both private individuals and businesses have been transferring funds to places they believe are safer - such as German banks or the London property market.

Routes such as transferring assets to subsidiaries or private banks elsewhere are being used to move large amounts of money by international companies and the wealthy.

These methods are not open to ordinary citizens, but Greeks have been reported to be pulling out cash and stashing it away in case the currency falls out of the euro and returns to the drachma.

Many are also transferring any spare cash held in savings abroad to relatives or friends and asking them to hold on to it. One Greek living in London told This is Money that many of his compatriots have been regularly moving any money they can out of the country for some time.

'The situation in the eurozone is worrying to say the least and any responsible institution should of course be preparing for the worst-case scenario,' he added.

Stock markets across Europe were steady today after yesterday's rollercoaster ride in the wake of Spain obtaining 80billion from the EU to shore up its banking system.

But Spanish and Italian 10-year government bond yields were trading at 6.59 and 6.01 per cent respectively, as investors worried how Spain's debts would be repaid. That is worryingly close to the 7 per cent level widely seen as unsustainable, and which triggered bailouts in Greece, Ireland and Portugal.

'Despite Spain's banks being better off to the tune of €100billion, yields on Spanish government debt have surged above the danger level as traders interpret this as an escalation of the debt crisis and not as a preventative measure that policy makers had tried to spin things,' said Jonathan Sudaria, a dealer at London Capital Group.  

Italy, as well as Cyprus, came into the eurozone firing line last night after the Spanish bailout failed to inspire a lasting boost for markets. Early euphoria evaporated as investors fretted about the details of a Spanish rescue and which country would be next to need support.

Kathleen Brooks, an analyst at Forex.com, said: 'Throughout this crisis Europe’s periphery has been personified as a pack of dominos – if one falls then others will follow. So now the attention turns to the next domino.'

Cyprus, which is heavily exposed to Greece, hinted that it may need a bailout by the end of the month – both for its banks and the country as a whole.

'The issue is urgent,' said finance minister Vassos Shiarly. 'We know the recapitalisation of the banks must be completed by June 30 and there are only a few days left.'

It is feared that Cyprus may be followed by Italy and the country’s borrowing costs soared as the crisis threatened to spread to Rome.

Official figures in Italy showed the economy shrank 0.8 per cent in the first three months of the 2012 – the sharpest decline for three years.

The terms of the Spanish bailout – widely seen as less onerous than for other countries – could also trigger demands for earlier rescues to be renegotiated.

It has stoked popular anger in Greece, where the radical-left coalition, SYRIZA, may win the second election, increasing the risk that Greece could renege on its EU/IMF bailout and therefore move closer to abandoning the euro.

The EU source told Reuters that the Eurogroup Working Group - which consists of eurozone deputy finance ministers and heads of treasury departments - has also discussed the possibility of suspending the

Schengen agreement, which allows for visa-free travel among 26 European countries, with the aim of limiting a bank run or capital flight.    

'Contingency planning is underway for a scenario under which Greece leaves,' one of the sources, which Reuters said has been involved in conference calls on the plans, said. 'Limited cash withdrawals from ATMs and limited movement of capital have been considered and analysed.'    

Another source confirmed the discussions, including that the suspension of Schengen was among the options raised.    

'These are not political discussions, these are discussions among finance experts who need to be prepared for any eventuality,' the second source said. 'It is sensible planning, that is all, planning for the worst-case scenario.'   

The first official said it was still being examined whether there was a legal basis for such extreme measures.    

'The Bank of Greece is not aware of any such plans,' a central bank spokesman in Athens told Reuters when asked about the sources' comments.    

Short lived: Early euphoria on the financial markets evaporated

Short lived: Early euphoria on the London stock market yesterday soon evaporated



Here's what other readers have said. Why not add your thoughts, or debate this issue live on our message boards.

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- Donny, YORK, 12/6/2012 23:54 Would you care to explain how that would come about, No thought not, you are actually talking rubbish which you have been spoonfed by the EU loving Communists.

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This is tit-for-tat by the EU & it's like Greece is being held at gunpoint. If only economies like Spain could learn from this & avoid taking loans from the EU. They should have the determination to restart their economies than rely on EU.

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Emma, I presume you have accounts and are planning on not claiming UK benefits as you are so much in love with that abortion of an idea called the EU! When do you plan to relocate to mainland Europe so that you can join your many friends there and help bail them out with your obvious wealth? - cynical voter, East Grinstead, 12/6/2012 22:56 You also need to put your money where your mouth is if the Euro goes belly up. There will be plenty of folks in this country who will be losing their jobs and homes, but hey, why let that spoil your free-for-all party. You obviously wouldn't have anything to lose yourself??? On the dole claiming benefits are we?

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EU finance chiefs today admitted holding contingency discussions about possibly putting limits on Greek cash machines to stop mass withdrawals if Greece quits the euro......This is dictatorship more than democracy by the EU. The EU are holding the Greeks unto ransom because of their failure with the euro, but will remain in denial. Is it not against the human rights of people to be denied the freedom to spend their money as they wish? It only makes matters worse for Greece in that investors may be reluctant to invest & create employment in Greece & if this happens how will the Greek government repay any debts owed to EU?

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I have no problem with the Greeks coming here, if the end the Euro madness the the UK will look after them.

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They're after your savings get them out of the bank before it's too late, and Emma, Hastings you can't be for real, if you are you are one very deluded lady.

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Too late - the horse has bolted. A huge amount of money has left Greece already. What took them so long

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Quick. Get your cash out now, chaps. Dump Euros and buy dollars. Better still, gold coin. - Jim Brady, London, 12/6/2012 21:00>>>>>>>>>>>>>> So I pay about 300 for a gold sovereign. I use it to pay for a Mars Bar which costs 60p and get two shiny 20p coins in change. Am I missing something?

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Denying people access to their own money is THEFT. - Shantyman, Harwich, England, 12/06/2012 21:35 I totally agree but Since when has that stopped any government when it suits them

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Errrrr it's my money! If I want to withdraw it from a failing bank I will do so!

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