Tuesday

6th Dec 2016

Germany resists demands to make gold reserves into euro-collateral

  • British gold: National treasuries rely on the country's gold reserves (Photo: Bullion Vault)

Germany has rejected demands by France, Britain and the US to allow national gold reserves to be put as collateral for the eurozone bailout fund.

"German gold reserves must remain off limits," German economy minister Philip Roessler told ARD radio on Monday morning.

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Both the Welt am Sonntag and the Frankfurter Allgemeine Sonntagszeitung reported a day before that Paris, London and Washington had pressed German chancellor Angela Merkel at a G20 summit in Cannes on Friday to allow the controversial move, which would have increased Germany's contribution "through the back door."

Proposals to sell about €15 billion of Germany’s gold reserves, worth a reported €139 billion, were dismissed by Merkel's spokesman on Sunday. “Germany’s gold and foreign exchange reserves, administered by the Bundesbank, were not at any point up for discussion at the G20 summit in Cannes,” he said.

The involvement of the International Monetary Fund (IMF) in the envisaged one-trillion-euro rescue fund is one more reason for Germany to say 'nein', as its gold reserves would also be tapped by the Washington-based body, central bank chief Jens Weidmann warned Merkel, according to the Irish Times.

A Bundesbank spokesperson said the institution “rejected” plans to touch federal reserves.

But the issue is unlikely to be brushed off as easily as Germany wants. Finance ministers of the eurozone meeting on Monday in Brussels are set to struggle to find alternative ways to boost the eurozone's bail-out fund, the European Financial Stability Facility (EFSF) from its current €440 billion to €1 trillion.

Germany is bound by its parliament to cap its contribution to the EFSF to €211 billion. Speaking in the Bundestag last month, Merkel insisted this will not be increased. She did not rule out, however, that there may be a "risk" that this happens.

At a summit in Brussels, eurozone leaders last month had hoped to involve emerging countries like China, India and Brazil via a guarantee fund associated to the IMF, a so-called special investment vehicle. But non-IMF countries have been slow to respond and have pointed to political crises in Greece and Italy as a good reason for not getting involved.

France is particularly interested in quickly having the EFSF boosted, due to its high exposure to Greek debt. Italy, the third largest economy in the eurozone after Germany and France, is also keen, with its borrowing costs hitting record highs in recent weeks.

One German MP from Merkel's Christian Democratic Party said that while German gold for Rome is out of the question, Italian gold could be used instead.

"If they sold their gold, it would relieve the government from its debt pressure," said Gunther Krichbaum, head of the EU affairs committee in the Bundestag.

No euro crisis after Italian vote, says EU

The Italian PM's resignation after a failed constitutional referendum has not changed the situation, the Eurogroup president has said. Financial markets have remained stable.

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