Op-Ed: Deeply indebted euro zone countries are hoarding significant quantities of gold reserves: Greece has 4 million ounces, Portugal's stash is worth 13 billion. But instead of selling it to pay off their creditors, they'd rather ask t
The first thing any insolvent private person is forced to do is relinquish the family silver. But other rules seem to apply to governments. Whether they've been living above their means for a few years or for decades, certain countries hold on tight to their assets, declare themselves unable to pay back their debts and turn to other countries for help.
The European Union (EU) has seen many an example of this. Right now, Greece is negotiating with the EU-European Central Bank-International Monetary Fund troika for a new rescue package — all the while Athens sits on an impressive four-million-ounce (125 U.S. tons) stash of gold, about what four large, fully-loaded trucks could carry.
The gleaming bars in the vaults of the Greek National Bank are worth 4 billion euros. If Athens were to sell that gold, the Greek state would theoretically be able to meet at least part of the debt payments due soon without any outside help.
Another country in crisis, Portugal, also holds significant amounts of precious metal dating back to the days of António de Oliveira Salazar's regime. Instead of aid, Lisbon could have converted its 13 billion euro's worth of gold into cash.
Nick Moore, chief commodities strategist at the Royal Bank of Scotland (RBS) in London, reports that a question often asked by bank clients is why these governments don't sell some of their gold. It is after all recognized worldwide as an asset that can be sold even in tough economic times. The gold in the central banks of Eurozone members together is worth some 375 billion euros.
With that, 4.5% of Euroland's 8.3 trillion euros public debt could be paid off in one fell swoop. In relation to its debt, Portugal is particularly gold-rich. Lisbon could put 383 tons of it on the market and at present rates make 13.3 billion euros.
And if Europe sold off all its gold?
The issue is particularly volatile because the Portuguese just squeezed an 80-billion-euro aid package out of the EU. The reason given for the aid request was that the country wouldn't get fair conditions from capital markets, but needed money to pay back outstanding loans. With the money they would have gotten from selling gold, they would have been able to pay back a large part of an older debt they've been carrying which is due this year.
By comparison with the rest of Europe, Lisbon is hoarding disproportionately large quantities of gold. No other country has that much precious metal in their foreign exchange reserves. During the Euro's early years, the National Bank wasn't shy about selling, reducing its gold reserves from 20 to 12 million ounces and raising liquidities of about 2.8 billion euros.
But Portugal stopped selling in 2007 and so did Greece. At the start of the new millennium, Greeks sold substantial amounts of metal, but when the crisis hit, they left supplies untouched and asked Europeans for help.
This may, however, not be entirely due to the unwillingness of government's to use their gold reserves to pay back debt. There are institutional hurdles: finance ministers do not have direct access to gold reserves. Central banks are independent institutions not subject to government orders — a requirement of European currency union contracts. Still, those same contracts contain other passages that the Europeans have not respected, such as Article 125, known as the "no bailout clause.""
Article 123 forbids financing state budgets through the European Central Bank, but de facto that happened when the ECB bought Greek bonds in May 2010. Then there's Article 126, which regulates policy for dealing with excessive deficits in member states. These procedures have been invoked pro forma but never actively implemented. Before the financial crisis, 13 cases were opened then closed.
There is an excellent opportunity to put gold on the market now. The price of the precious metal is only just below record highs. There is also enough leeway as regards the Washington Central Bank Gold Agreement (CBGA), to which a number of central banks are signatories, agreeing not to bring more than a specific amount of the metal onto the market per year.
Of the 400 tons allowed, only 53 tons have been sold during the present accounting period out of which 52 tons came from the reserves of the International Monetary Fund. If the central banks want to sell within the framework of the agreement, they are free to do so until September 26, when sales quotas expire. Many central banks around the world are doing just the opposite, and gold continues to be stockpiled.
Read the original article in German
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