FOREX NEW YORK COMPANIES

• 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’.
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
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 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.