Talks between Greece and its creditors seem to be going nowhere. Amid doubt over its capacity to meet mounting debt obligations, financial markets are bracing for default by the country and its departure from the single currency. This is not seen as an inevitability, although “Grexit” risk is reaching new heights.

Not for the first time, contingency plans made at the outset of the saga more than five years ago are being updated.

A brusque intervention by German finance minister Wolfgang Schäuble, in which he cast doubt over the prospect of an early deal to unlock funds, reflects a profound lack of confidence in engagements with premier Alexis Tsipras and his hard-left administration.

With €9 billion due to the IMF this year alone, Greece could run out of money soon. But is the country on its way back to the drachma? How would that scenario play out? And what risks would arise?

Here we must separate the higher moral politics of the situation from the technical lack of cash in the Athens treasury and all that flows from it.

Although Angela Merkel toyed with a Greek exit three years ago, she pulled back. Now in her third term as chancellor and unassailable still as the pre-eminent figure in European politics, the question remains as to whether she would cast herself as the German leader who thrust six decades of EU integration into reverse by cutting Greece from the euro.

This still seems unlikely. Europe is, after all, a peace project. Furthermore, western leaders are wary of providing leverage via Athens to Vladimir Putin, the belligerent Russian president.

Still, other European leaders remain deeply reluctant to offer special Greek reliefs for fear of encouraging Syriza-like radicalists such as the “anti-austerity” Podemos in Spain and Sinn Féin here in post-bailout Ireland.

There is more. For all the frustration around Europe and beyond at the lack of headway in the Greek negotiation and the increased threat of default, the actual engagement remains at the level of finance ministers and their officials.

Deep consideration

Anything as serious as an imminent threat of departure from the currency would necessitate deep consideration at the level of prime ministers, presidents and chancellors. There is no sign of that at this point. For now, indeed, EU Commission chief Jean-Claude Juncker and European Council president Donald Tusk remain in the background.

All that could change quite rapidly, of course. Yet the apparent absence of drama and urgency at the highest political level suggests Grexit sirens are not blaring, or not blaring just yet. Still, the ongoing deterioration in the Greek public finances since Tsipras was elected has increased the fiscal challenge to be overcome in the talks.

What if the situation comes to a head and no messy compromise saves the day?

In question in the technical sense for Greece would be the issuance of new drachmas or a quasi-currency in the form of government IOUs to make wage, pension and other payments. This could happen over the course of a weekend, with banks shut for as long as it takes to organise the new system. Capital controls would be imposed to prevent hard cash and capital from leaving Greece. The new currency would fall against the euro, bringing with it a new wave of hardship in the country as costs escalate.

There are unavoidable implications, too, for other euro zone members. True, the message has gone out from Berlin and other capital cities that Europe’s anti-crisis firewalls are strong enough now to keep the rest of the zone together. But no one can really say whether the combined forces of the European Central Bank and ESM bailout fund would be sufficient to prevent havoc in financial markets and beyond.

Volatility is inevitable in such a scene, but it is simply not possible to predict whether it could be contained. Is Grexit really priced in by the market?

At issue ultimately is whether confidence could be maintained in bank deposits elsewhere in the euro zone once the currency’s irreversibility was suppressed. Opinion is divided.

The danger of such confidence being undermined led analysts at UBS to say this week that other countries might follow Greece out of the euro within months if it left. Economist Barry Eichengreen of the University of California-Berkeley argued in January that the fallout from a Greek exit would be akin to “Lehman Brothers squared”.

These are the parameters within which the looming endgame will play out.