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.
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 been involved in the conference calls, said. "Limited cash withdrawals from ATMs and limited movement of capital have been considered and analyzed."
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."
And it really is sensible planning for the magnitude of what could happen very soon. It's also all but guaranteeing a massive series of bank runs that will rapidly bring about chaos as a result. The fact that the EU is seriously considering locking off member nation borders and bank withdrawals should clue everyone in that the time to get your money out in Greece and Spain and Italy is now, before these kick in. Voila! Instant self-fulfilling financial apocalypse, just add water.
This is a real problem, folks. Strap in. The Spanish bank bailout has failed, and Italy is next.