FINANCIAL FIRMS in the UK are dusting down contingency plans for a Greek exit from the euro – an event that the head of the International Monetary Fund said could be “quite messy”.
Banks in the UK have been making preparations since at least November when the Financial Services Authority’s top regulator, Andrew Bailey, told banks: “We must not ignore the prospect of the disorderly departure of some countries from the euro zone.”
Icap, the City currency broker, is ready to reintroduce a drachma trading facility by installing a new panel on its electronic screens. Michael Spencer, its chief executive, said: “I don’t think it’s going to happen in the next week but I think it’s going to happen.”
He dismissed concerns about the entire euro zone breaking up but said other countries might leave and a Greek exit “needs to be organised . . . sensibly”.
While the timing of any exit is not clear, banks are assuming a decision would be made quickly as the country would need to close down its borders and its banks to stop funds flooding out of the country.
UK banks have taken steps to reduce their exposure to Greek government bonds and other loans and allow customers in Greece to keep using their credit cards.
One unknown is exactly how the Greek currency would be denoted in the payment system that works behind the scenes to move money electronically around the world – known as Swift (Society for Worldwide Interbank Financial Telecommunication). The decision lies with the International Standards Organisation. When Greece joined the euro the drachma had been known as GRD and identified by the numeric code 300.
Some bankers hope the new code will be different to ensure computers do not pick up any legacy information. Despite requests by banks for the notification of the code, no decision will be made until a formal request by Greece. Then, a decision will be made within hours.
The hope is that a departure from the euro zone would happen over a weekend, allowing each of the UK’s major banks to deploy hundreds of people to switch over computer systems to allow them to handle the Greek drachma again.
Legal documents have been checked to ensure loans are written in English law rather than Greek law, permitting payments to continue in euros rather than the new drachma, which is expected to lose at least 50 per cent of its value instantly.
Greece joined the single currency at a rate of 350 drachma to the euro.
While the computers can be reprogrammed, meeting demands from customers walking in to branches to ask for drachma notes will be difficult as the currency will be controlled by Greece’s central bank.
Unless officials have been secretly printing drachma notes, the fastest solution could be to stamp “drachma” or some such symbol across existing euro notes – although Greek shopkeepers and merchants may well be keener to accept clean euros rather than mock drachmas. – (The Guardian)