As we are all aware things over in Greece have been dominating the European financial headlines for some time now. We saw the new prime minister Alexis Tsipras jump the gun slightly in anticipation of a substantial debt writedown which we are yet to see. Its the old story really with politics promise the world and deliver very little. The ECB member states have been very reluctant from the minute the Greek chaos started about any debt forgiveness and they have managed to stay true to their word.

Normally in these situations we normally see the can being kicked down the road and some last minute deal being reached and everyone returns back to playing happy families, however this time it may just be different. As of last night there was little indication of a new deal being reached, while they had received an extension back in February, none of the technical details were finalised and in turn Greece’s creditors have been left with a whole in their pocket.  Unfortunately for the Greeks they are heading down an inevitable path and its only a matter of time before they run out of money and chaos ensues.

One of the scenarios that I tend to lean towards was presented by Bank Of America (Merrill Lynch) in which they see the following taking place;

‘In this scenario, Greece fails to demonstrate a credible commitment to reforms in the next few weeks. In this case, the Europeans and the IMF suspend the current program, the ECB refuses to continue increasing the Emergency Liquidity Assistance (or just lets the Greek banks run out of eligible collateral), the loss of bank deposits accelerates triggering a full bank run, and Greece defaults to the IMF and the ECB. Unless any of these shocks force the Greek government to go back and seek a deal with the rest of Europe, Grexit within this year becomes inevitable, in our view. In this scenario, either Europe would offer it as an option, allowing Greece to remain in the EU, or it would become Greece’s only option to avoid a complete collapse of the economy and even a failed state.’

While the headlines tend to focus on Greece leaving the Euro and the ECB turning its back on the member state there is a last chance saloon that we saw Cyprus introduce back in 2013 when it was faced with financial turmoil. It is the idea of capital controls, essentially restrictions put in place to protect the country from a financial meltdown. Some for of the capital controls that Cyprus saw included;

• ATM withdrawals were capped, with some banks only able to dispense €100 at a time. 

• Border police were able to confiscate anything above €10,000 being physically removed from the country (perhaps easier in an island nation like Cyprus than in Greece).

• Importers and exporters got a special dispensation for exchanging currency and transferring money to the rest of Europe — but they had to prove they were actually buying or selling something.

With big payment deadlines on the short term horizon, and current negotiations making little or no headway we might have a very complicated situation in store. Its not often you hear about a country running out of money, but for Greece this is very much a reality waiting to happen.

PS. To add to all of these its not going to help our Euro currency either!