Storm of the century: Europe talks about limiting ATM withdrawals as crisis threatens to unravel eurozone

June 12, 2012 – EUROPE – European finance officials have discussed limiting the size of withdrawals from ATM machines, imposing border checks and introducing euro zone capital controls as a worst-case scenario should Athens decide to leave the euro. EU officials said the ideas are part of a range of contingency plans. They emphasized that the discussions were merely about being prepared for any eventuality rather than planning for something they expect to happen. But with increased political uncertainty in Greece following the inconclusive election on May 6th and ahead of a second election on June 17th, there is now an increased need to have contingencies in place, the EU sources said. The European Commission said today it was helping with legal advice in discussions of contingency scenarios regarding Greece by the Eurogroup working group. “I’ve not said that I’m not aware of any discussions, I’ve said I’m not aware about any plans, which is a slight difference,” Commission spokesman Olivier Bailly told a regular news briefing, when asked about Commission involvement in discussions about the contingencies were Greece to leave the euro. “What I said also is that some people are working on scenarios. We are providing information about EU law, as the guardian of the treaty,” he said. The discussions have taken place in conference calls over the past six weeks, as concerns have grown that a 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 currency. No decisions have been taken on the calls, but members of the Eurogroup working group, which consists of euro zone deputy finance ministers and heads of treasury departments, have discussed the options in some detail, the sources said. Belgium’s finance minister, Steve Vanackere, said at the end of May that it was a function of each euro zone state to be prepared for problems. These discussions have been in that vein, with the specific aim of limiting a bank run or capital flight. As well as limiting cash withdrawals and imposing capital controls, they have discussed the possibility of suspending the Schengen agreement, which allows for visa-free travel among 26 countries, including most of the European Union. ‘Contingency planning is underway for a scenario under which Greece leaves,” one of the sources, who has beeninvolved in the conference calls, 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.” –Irish Times

Spanish bank deal will fall apart in a month: Only this one may not even succeed in buying time – I give it less than a month before some such other piece of bad news comes along to fire the crisis anew. Like all the others, the latest fix seems to create as many problems as it solves. The euphoria in markets at Spain’s rescue lasted all of a few hours; having bounded away at the opening, they ended broadly flat. But please don’t call it a bail-out. It may walk, talk and look like a bail-out, but to the Spanish premier, Mariano Rajoy, Spain’s handout is completely different to the three rescues we’ve already seen, even though at €100bn (£81bn)– or some 10pc of Spanish GDP – it’s quite a bit larger than that of Ireland and Portugal. No doubt mindful of the fact that every political leader who has agreed on a bailout to date has been defenestrated soon afterwards, Mr. Rajoy has attempted to snatch victory from the jaws of humiliation by proclaiming the €100bn of aid an unparalleled triumph. To Mr. Rajoy, however, the Spanish aid is no more than “the opening of a line of credit for our financial system,” which because Spain has been such an exemplary to others in accepting austerity without complaint, has been offered more or less unconditionally. I suspect Mr. Rajoy is in for a bit of a shock once he sees the fine print, but for him, the important thing is getting it across to his electorate that Spain is not being bailed out. Honour has to be seen to be maintained. Unfortunately, the reality is altogether different. This is not a direct line of credit to the Spanish banking system, but a sovereign loan which expands the national debt by getting on for 20pc. The fact that all of it is going to be used to prop up the banking sector is no more than cosmetic for an underlying truth – that it is Spanish taxpayers who are left with the liability. Spain is being forced to borrow from Europe to bailout its banks because markets won’t provide the money directly to Spain. –Telegraph

Banks downgraded, yields rise: And just when you thought it couldn’t get any worst for Spain; it just did. Spain’s benchmark borrowing rate hit its highest level Tuesday since the country adopted the euro currency, after ratings agency Fitch downgraded 18 banks on Tuesday and investors continued to find more questions than answers in the country’s decision to seek help for its ailing bank sector by tapping a €100 billion ($125 billion) eurozone bailout fund. The yield on Spain’s 10-year bond yield rose to hit 6.81 percent in afternoon trading, according to data provider FactSet, while stocks seesawed and were down slightly just before markets closed. –US News WR