THE European Central Bank (ECB) has analyzed a scenario in which Greece runs out of money and starts paying civil servants with IOUs, creating a virtual second currency within the euro bloc, people with knowledge of the exercise told Reuters.

    Greece is close to having to repay the International Monetary Fund about 1 billion euros (US$1.3 billion) in May and officials at the ECB are growing concerned.

    Although the Greek Government has repeatedly said that it wants to honour its debts, officials at the ECB are considering the possibility that it may not, in work undertaken by the so-called adverse scenarios group.

    Any default by Greece would force the ECB to act and possibly restrict Greek banks’ crucial access to emergency liquidity funding.

    Officials fear however that such action could push cash-strapped Athens into paying civil servants in IOUs in order to avoid using up scarce euros.

    “The fact is we are not seeing any progress. So we have to look at these scenarios,” said one person with knowledge of the matter.

    A spokesman for the ECB said it “does not engage in speculation about how specific scenarios regarding Greece could unfold.”

    One Greek government official, who declined to be named, said there was no need to examine such a scenario because Athens was optimistic it would reach a deal with its international lenders by the end of the month.

    Greece has dismissed a recent report suggesting it would need to tap all its remaining cash reserves across the public sector, a total of 2 billion euros, to pay civil service wages and pensions at the end of the month.

    (SD-Agencies)