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EU plans for possible break-up

(MoneyWatch) As anti-EU sentiment intensifies across Europe, nations and financial institutions are making plans about what to do if the already frayed union shrinks, or even splinters.

France and Germany this week are presenting a plan to ensure that governments keep the right to impose national border controls within the EU. In another sign that local officials are preparing for what could be convulsive changes within the union, the European Investment Bank is now requiring that all contracts with Greek entities include repayment guarantees in case Greece leaves the EU. It also intends to do this with other financially troubled nations.

The EIB, which is funded by the 27 EU members, earlier this month began inserting so-called "drachma clauses" in all contracts with Greek borrowers. These clauses allow for renegotiation of contracts should Greece leave the eurozone or should the common currency area break up. They also place the agreements under English -- not Greek -- law in case of any problems with the payback process.

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The Greek newspaper Kathimerini reports, "EIB sources suggest that the currency-change clause will be included in all contracts with countries applying economic stability programs (Greece, Portugal. and Ireland) and gradually expand to all eurozone countries."

At a meeting of EU interior ministers, French and German officials asked that governments be allowed to continue to control their borders for up to 30 days without the EU being able to take action. The EU is considering a plan which would reduce that time to five days. 

This border-control power has been used many times. In 2006, Germany put controls in place while it hosted the World Cup. Spain has said it will re-institute border checks during next month's meeting of the European Central Bank in Madrid. Poland will do the same from June 4 to July 1, when a major international soccer tournament is underway.

The EU currently allows visa-free travel across 27 countries. Many EU governments are unhappy with Greece and Italy, which are both considered to be lax at keeping out non-EU citizens. It is also worth noting that in the past, nations have shut their borders and curtailed cash flow whenever they have had to re-value their currencies.

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