As "Options Run Out", This Is What Greek Capital Controls Would Look Like

Tyler Durden's picture

In what is being billed as a “last ditch” effort to secure an agreement with creditors, Greece’s negotiating team is in Brussels this weekend, where the focus is on crafting some kind of mutually agreeable proposal that can be presented at a scheduled meeting of EU finance ministers next Thursday. 

There were reports on Saturday that Greek PM Alexis Tsipras was attempting to trade concessions on Greece’s ‘sticking points’ (i.e. the “red lines”) for debt relief (i.e. writedowns), but by the end of the day that rumor, like all the others that emanate from Brussels these days, had faded. 

On Sunday negotiations will continue with EU officials having seemingly moved from exasperation to ambivalence. Here’s FT:

Talks between Athens and its international bailout creditors were expected to resume late on Sunday after Greek government officials were told to submit a final list of economic reforms in order to secure €7.2bn in desperately needed rescue aid.


The request came in a meeting in Brussels on Saturday between Nikos Pappas, aide-de-camp to Alexis Tsipras, Greek prime minister, and Martin Selmayr, chief of staff to Jean-Claude Juncker, the European Commission president who has played a central role in trying to broker an 11th-hour deal..


“Positions are still far apart,” said one EU diplomat. “It’s not certain there will be an outcome.”


Another senior eurozone official said the Greek team returned to Brussels on Saturday without new proposals and that Sunday’s evening session would be a “last try.”


“Greek movement [is] not discernible,” said the official. “I think they do not want a solution.”


“A credible proposal needs to be tabled by the Greeks in the next 24 or so hours,” said Mujtaba Rahman, head of European analysis at the Eurasia Group risk consultancy. “Otherwise it’s looking like game over for Athens.”

Whether or not it would truly be “game over” for Greece should Tsipras’ negotiating team fail to table something “credible” by Monday is certainly debatable. After all, EU officials said the exact same thing on Thursday and here we are on Sunday listening to the same tired rhetoric.

The truth is that as long as Tsipras can get an agreement in principle sometime over the next three weeks (or maybe even in the next five weeks), Greece can probably avoid a default. If Greece were to miss a payment to the IMF, Christine Lagarde would need to send a formal failure to pay letter to the Executive Board. Only then would Greece actually be in default. It’s up to Lagarde to decide when to send that letter and she would have at least 30 days. The set up for EFSF loans is similar, and besides, it seems exceptionally unlikely that either EU creditors or the IMF would put Greece into formal default while a deal is working its way through the Greek parliament, meaning all Tsipras really needs to do is get something on paper that has a chance of flying with Syriza hardliners and get it to the floor before July 20, when a payment to the ECB comes due.

As such, the real short-term risk likely isn’t cross acceleration rights in the event of a formal default to the IMF on June 30, but rather what happens to the Greek banking sector when depositors — who are already pulling hundreds of millions of euros each day from ATMs — find out that Athens has missed the €1.5 billion bundled payment without cementing a deal.

Irrespective of the political wrangling going on behind the scenes both in Athens and in Brussels, a terminal bank run could plunge the country into a crisis faster than politicians can react, an eventuality which would have to be met with capital controls. In “This Is What Capital Controls Will Look Like In Greece,” we took an in-depth look at this eventuality and presented the following graphic which helps to illustrate several potential scenarios:

FT has more:

“We are four to six weeks away from the possible imposition of capital controls,” said Daniel Gros, director of the Centre for European Policy Studies think-tank in Brussels. “There is always some temporary solution [eurozone politicians] can pull out of thin air, but now we are getting really close.”


Were Greece to default on a €1.5bn payment to the International Monetary Fund due at the end of June, the situation could spiral out of control, forcing the hand of policy makers. Greece could then be forced to repeat the experience of Cyprus and Argentina, which chose to intervene to stop their banks bleeding deposits in order to avoid insolvency.


But imposing capital controls would hardly be straightforward.


Such measures are frowned on by the EU treaties, which sanctify the free movement of capital — together with labour, goods and services — as one of the union’s four pillars.


It would be up to the government to enforce unpopular measures, such as limiting citizens’ cash withdrawals, exposing Athens to political blowback from angry citizens.

And here’s Open Europe with more color on what capital controls will look like in Greece:

How would Greek capital controls be implemented and what form might they take?


It’s likely that such controls would need to be brought in over the course of a weekend, though I expect they may also need to be combined with some bank holidays anyway

  • Cash/ATM withdrawal limits: This would be a vital control in order to halt the huge outflow of deposits which has been taking place and which will pick up if a deal isn’t struck soon. In Cyprus the limit was set at €300 per person per day. However, I suspect ones in Greece may go even lower. This is because Greece is suffering from serious domestic withdrawals while the primary concern in Cyprus was foreign outflows.
  • Foreign transfer controls: The aim here would be to limit the amount that people can transfer abroad from Greece in one go and also over a set period. Obviously some transfers are needed for businesses to function so there would need to be a process by which businesses related (and other verified) transactions could still go through.
  • Time requirements or taxes: Other options or versions of the above include taxing certain withdrawals or foreign transactions heavily. This has the advantage of potentially creating a revenue stream for the government, though it may come at a very high cost. The government could also decree time limits on certain deposits or investments in an attempt to limit withdrawals indirectly.
  • Physical controls: Obviously with free movement within the EU it would be quite easy for people to move large amounts of cash or assets across borders. As such there will need to be checks and limits on the amount of cash people can take abroad with them. This may also have to extend to assets. For example, someone could purchase a car and then try and drive across a border and sell it on. This is tricky to police but some attempts may well be made.

Harvard economist Kenneth Rogoff (who has an opinion or two about high debt and economic growth) echoes the above, telling NZZ am Sonntag that capial controls in Greece are the only alternative (via Bloomberg):

“I see only one possibility: Greece should introduce capital controls for an extended period,” Harvard University economics professor Kenneth Rogoff tells NZZ am Sonntag in interview.

We assume no spreadsheet errors were made on the way to that conclusion.

*  *  *

If Athens does decide to take the plunge and set about the 'Cyprus'ing' of Greek depositors, the real problem may not be how to implement capital controls, but rather how to lift them, especially considering Greece is doomed to a life of debt servitude until at least 2057. On that note, we'll close with the following warning from Reykjavik University economist Friðrik Már Baldursson: 

“It is easier to impose the controls than to lift them. The government needs to convince depositors that they can bring their money back into the banks as controls will not be imposed again. But credibility can disappear very quickly and take a lot of time to be regained.”

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Haus-Targaryen's picture

Why the ECB keeps extending the ELA is beyond me.  

Stained Class's picture

Because Schauble knows he should have taken the hit back in 2012 or 2010, now its much worse. And inevitable.

Haus-Targaryen's picture

Right, but the hit is inevitable.  So why keep fooling around?  

I wonder if Greece would even impose capital controls.  I mean, if reducing Grandma's pension by 5% is the "red line" then you would think locking all of Grandma's money in the bank so as to make it impossible for her to get it out would be even a bigger deal.  

Other than the bare essentials, how do you get suppliers to supply a country with goods if they cannot get their money out?  

This is going to turn into a shit show.  

I could see an overnight & instantanious EUR -> GD digital conversion with unlimited card and wire usage and then turn off cash for a day or two until you get all the ATMs up and running with the new Drachma, and then have the banks start converting them at the floating exchange rate -- it would force those people holding EUR in Greece to spend them in Italy for example, and get the velocity of cash in the new GD moving. 

But seriously, capital controls and keep the EUR? If the Greeks want that then they deserve to get crucified.   

kaiserhoff's picture


“Positions are still far apart,” said one EU diplomat. “It’s not certain there will be an outcome.”

Oh there will be an outcome, no doubt about that.

Friggin' morons.

HenryHall's picture

>>> Why the ECB keeps extending the ELA is beyond me. 


They are hoping to kick the can down the road until after the vote on EU renewing anti-Russia sanctions. The EU anti-Russia sanctions expire in August 2015 if not renewed by a vote in June 2015.

The most powerful weapon Syriza has is to default and veto sanctions. Once they give up the ability to veto sanctions they will then be declared to be in default.

Wolferl's picture

>>> Why the ECB keeps extending the ELA is beyond me.


The ECB got about 200 billion in performing Greek loans as a collateral for ELA. This means they own almost all the assets as collateral Greek privat banks had on their books. In case of a default Greeks banks will have nothing but Greek public debt.

HenryHall's picture

For a government, the great thing about hard assets (real estate and related things) is that you can tax them so heavily that the owners will want to give them to you. McCulloch v. Maryland, 17 U.S. 316 (1819) "THe power to tax"

Wolferl's picture

True, but only if they tax everything and everyone in the same equal way, which means they cannot tax foreigners more than Greeks. Besides that, the collateral will just be sold to satisfy the creditors, no tax here at all since they just get their money back.


(And btw, this is Europe, not that interesting what US courts think)

WOAR's picture

Common law is common law.

If ONE government has the power to tax, ALL governments have the power to tax...unless otherwise prevented in their constitutions. (I'm sure there would be a work-around if that were the case.)

In other words, if one country has had a court case discussing an issue, it is highly likely that other courts in other countries have reached similar conclusions.

Wolferl's picture

You have no clue about law at all, regardless where on this planet, right? Starts with ... there is no common law in continental Europe.

Pinto Currency's picture



Rogoff is promoting a cashless socitety.

Consider his agenda.

cookie nookie's picture

Bill Clinton had sex with my mother.  I'll never forgive him.  Vote for Warren.

Renewable Life's picture

Am I the only person who has noticed that for the last month, the Greek people have been withdrawing anywhere from 100 to 600 million euros a day??

I assume in antisipation of the introduction of a new local currency backed by possibly the new Chinese infrastructure bank/Russian Ag deal and all those Euros will be converted at a very generous rate, making all the "lil people" feel suddenly richer then they were a day earlier!!

It's really the ONLY play Greece has, it will be a win for the people and Gov and Russia and China of course, and the longer the Greeks can delay without consequence, he more Euros they confiscate before jumping ship!!

Anything else, and the Greek people are fucked and the EU obligarchs win!!

Wolferl's picture

Soooo, what if the ECB declares all Euro notes invalid and introduces new ones in case of a Greek default? And Greeks are not allowed to convert those old Euro notes into new ones?

Bobbyrib's picture

I take it you mean the Greek Euros only?


If you mean all Euros prepare for a currency crisis. Larry Crudlow would be on TV crowing about King Dollar and the Euro would probably be below parity with the dollar. What is backing the Euro? The same thing backing the dollar, the government's word.

Also people outside of Greece hold Euros. Here in the US we have a lot of Greek Americans who go back and forth to Greece. I imagine anyone holding Greek Euros would lose faith in the Euro instantly. Be they Greek, Russian, Chinese, American, or any other European nationality no one holding Greek Euros would be happy with the EU.

Wolferl's picture

I mean todays Euro notes. You just introduce new Euro notes and declare the old ones invalid. In a short grace period you can deposit the old Euro notes on a bank account. If you are Greek your Euro on the bank account get transfered to Drachma. After the grace period the old Euro notes are worthless, you pay with the new Euro notes.


(Btw, parity of Dollar/Euro is pointless, just numbers to calculate with. The Euro is strongly undervalued right now to the Dollar, good for Germany´s export industry)

Bobbyrib's picture

I think declaring old Euro notes invalid may be problematic to say the least. When Greece defaults they will go back to the Drachma anyway. I mean you could take all the Greek Euros and print new Euros, but to do it on a wider scale could create a currency crisis. No one is going to want to deal with governments who declare old notes invalid and create new notes. The EU would be better off having the Greeks edge themselves out of the Euro naturally overall. It won't be worth it to punish the Greeks and inconvenience a lot of people in the world.

I am aware that the Euro is undervalued to the dollar. IMHO, I don't think it is pointless to measure the Euro to dollar exchange rate as the US is still the reserve currency and Europe won't be able to survive without trading with countries outside the EU. When the dollar collapses under the weight of our debt, that is when the measurement will be pointless, because the US dollar will no longer be the reserve currency of the world. The US and UK have become quite good at manipulating the world, but am anxious to see how long this last. When will the rest of the world get sick of their bullshit?

How much has the US and UK printed and how has it affected the dollar and pound? They influence the EU to print and the Euro drops like a stone. That's a neat trick. Not to mention the precious metals manipulation.

Wolferl's picture

Declaring old bank notes invalid and handing out new ones is done every now and then in the Eurozone. We have new 5 and 10 Euro notes now. If the ECB hands out new 500, 200 and 100 Euro bank note every cash holder will be forced to convert them via a bank account. The ECB will have perfect control by that. And if the cash holder doesn´t convert his bank notes in time he will lose everything.

Bobbyrib's picture

"And if the cash holder doesn´t convert his bank notes in time he will lose everything."


Is that really the way things are now?

Wolferl's picture

If the ECB says so, yes. When all those national currency were converted to Euro, most bank notes lost their value after some time. 

MarketAnarchist's picture

I love how the new parallel currency is referred to as "IOU's".


What do they think the Euro is?  ACTUAL money?


Get real

two hoots's picture

Money is not Greece's problem, it is their corrupted social evolution.  They must admit their self defeat and accept something similiar to an EU Marshall Plan to reconstruct their nation.



Haus-Targaryen's picture

There cannot be a EU "Marschall Plan" for Greece.  


The Spanish and Italians are watching really closely what is happening here.  If Greece gets a hundred billion in free cash...

I'm sure the EU will throw a few billion Greece's was as a sort of "oh poor thing" kinda deal, but if the EU doesn't step on Greece's neck on this one -- we'll be having this same conversation about Spain in a year, and Italy not long thereafter.  

kaiserhoff's picture

Exactly right.  This is only the first domino, and the line eventually leads to France.

Haus-Targaryen's picture

On an aside, the German language has destroyed my ability to spell in English anymore.  

Arnold's picture


The American Public School System has killed our ability to spell correctly in any language , including English.

Haus-Targaryen's picture

Common core for spelling; 

Ok boys, girls, transgendered, cisgendered, cisgenderedconfused, transgenderconfused, I need you to spell the word "house"

The first step is to think of the word "desegregation" but students who have been desegretated have to live somewhere in a "house" and then take the letters from the word "house" and and when you put them together you get the word "house." 

Thats how you spell the word house.  

Next lets use the word "devil" -- the first step to learning how to spell this is think of the word "capitalism" ... 


WOAR's picture

The real question is: is it das Haus, der Haus, or die Haus? I'm gender confused when it comes to objects.

Herr Dildo?

kaiserhoff's picture

The only thing I can spell is Spanish.

They make it way too easy;)

CarpetShag's picture

Just wait till it fucks up your ability to speak coherent sentences.

Arnold's picture

I'm really kind of (temporarily) pleased with myself that I am not standing in that bread line.

two hoots's picture


Extract, literally extract repayment out of Greece while they are being helped.  Nothing free.   Spain and Italy must hear Greece weeping and gnashing of teeth and know this is their destiny if they choose to follow.  Greece must endure and accept major surgery if it wants to stand on its own feet again.  Anything else is a short term fix.

TwoHoot's picture

Imitation is the sincerest form of flattery.

TwoHoot's picture

Imitation is the sincerest form of flattery.

Stained Class's picture

Because Schauble's career would be over if he agreed to it. And Merkel's. Got to keep the banksterz cartel from taking ANY losses.

Bemused Observer's picture

Schauble is in his 70's, his career is already over...he just hasn't gotten around to dying yet. The only decision he has to make is how he's going a old stubborn asshole, or an unexpectedly sane voice that suddenly comes out of the wilderness and says, All right, we made our point. Now let's try something that might actually work...

Eyeroller's picture

What kind of Greek idiot would still have his/her money in a bank?

Bag Of Meat's picture

The grandma that can't afford 5% cuts in her pension doesn't have any money in the bank... Is it so hard to get already?? The scheme against grandma goes like this: 1)European banks bought greek bonds not giving a f*** about risk. 2) They realised the risk, and had the corrupt greek government buy all the bonds at par, then immediately default on them through (amongst other) pensioners funds (PSI). 3) Funds turn huge deficit. 4) EU goes : "Bad lazy greek pensioners getting pension before they reach the age of 12 ate all the fund money, CUTS CUTS CUTS". 5) EU demands 0% deficit clauses for the funds (which of course would result in much bigger cuts that your 5%). 6) X% cuts=> X% of pensioners D I E.

Can you see it now?

How are you people able to think on such double standards... good ole West has been tricked by the banksters and should hang them, but LAZY ASS GREEKS deserve cuts to death for the deficits the same banksters created.. 

F0ster's picture

They're all treading water on Greece in order to get the rest of the financial system for the financial shock and controls. These shenanigans are to distract everyone from what's going on behind the curtain. Greece will eventually be slaughtered like a little pig but not until TPTB are prepared to transition the system into something more operationally favorable to them.

Bemused Observer's picture

You make it sound as if there were some kind of plan behind it all, one involving more than making vague and confusing public statements and changing underwear frequently...and I just don't think so.

Wolferl's picture

Collateral. Worth about 200 billion Euro in Greek real assets.

kaiserhoff's picture

Yep, default already.

This is an embarrassment to the species.

Oh regional Indian's picture

Really Haus? Are you a tin-foiler or are you nut? 

The meta plan on a resource level is an econometric game.

All our fake and real NUMBers are generated there first and according to the model which I believe has been in play especially since 1971, there is a desired outcome.

That outcome might be the Georgia Guidestones messy-age! 

We shall see...some of the signs are, shall we say, not good.

Oh, and that picture? C'mon.....That is a bank withdrawl, Zero panic. Body language, if that is as bad as it got, lucky Greece...

Here is a deep deflect for me, keyboards, unlearned...


Haus-Targaryen's picture

Weren't you the one yesterday talking about an alien invasion?