This is not the first time that central bank gold reserves have been evoked as a partial solution to public debt problems. In the depths of the Greek crisis, the sale of nation’s bullion reserves was briefly discussed as a means to bring down the debt burden, but the holdings were too small to make any difference. In Cyprus, a proposal to sell the bulk of the island’s gold reserves was endorsed, at least by EU finance ministers. So, it was not shocking to hear about a proposal to put Italy’s ample bullion holdings – the second highest in the EU after Germany’s – to use in tackling its massive debt overhang.
When the financial website “Business Insider” proposed a solution to the euro crisis I was all ears. But when the saviour turned out to be none other than the Saviour, one could forgive me for being a sceptical. Although I agree the euro mess could do with a little divine intervention, a transcript of a speech by Deutsche Bank’s head of FX strategy, Bilal Hafeez, was the last place I expected an appeal for it. The euro area, like any teenager needs a father figure to accompany it through its present pubescent throes and to guide it to adulthood. Its birth parents, Germany and France, are not up to the job, so a respected, sinless, external figure is necessary – Jesus.
In April 2010 intrade.com, the spread-betting website, launched a new contract that allowed punters and pundits to bet on the breakup of the eurozone. More precisely: “any country currently using the Euro to announce intention to drop it before midnight ET 31 Dec 2012.” It immediately changed hands at 27 (per cent probability) and scarcely ever saw any price below 20 in the subsequent two years. Last autumn it reached a peak of 60. Today, it trades at 10.
One of the most commonly heard justifications for a break-up of the eurozone is that the ‘project’ was flawed from the outset. A currency union – or any union for that matter – that cannot countenance a situation where transfers would be necessary, or even bans them outright, has obviously been badly thought out. However, the euro-was-flawed argument is only valid if one assumes that its pre-crisis condition was ever intended to be the end state. If the currency union was only ever intended to be a stepping stone to a fiscal and then a political union, it is not the idea that was flawed, just the execution.
‘Nein’ still seems to be the favourite word of German politicians and central bankers. Angela Merkel says ‘No’ to a Debt Redemption Fund; ‘No’ to a European banking union; and ‘No’ to eurobonds. Bundesbank President Jens Weidmann is also very fond of the negative. He has chalked up an impressive string of ‘No’s’ concerning everything from large-scale sovereign bond purchases by the ECB and private sector participation in debt write-downs, to the use of Bundesbank gold as collateral for IMF loans.
Even beggars are getting wise to behavioural economics these days. Instead of asking whether you have any spare change, they ask instead for the time of day. Who can refuse a simple request for the time? However, once you have stopped and pushed back your cuff to look at your watch, it becomes more difficult to refuse a subsequent request for spare change.
My daughter’s class is doing a project on the European Monetary Union. Before you ask, the class is economics, not history. I briefly looked over some of the course material at the weekend. Naturally, everything had been published before the debt crisis and therefore spoke of the political and technical achievement of monetary union in what now looks like overly-glowing terms.
Britain should not fund another eurozone bailout until we see the colour of eurozone money, said the UK finance minister in the wings of this weekend’s G20 meeting in Mexico. ‘Quite right too’, will be the obvious refrain of all right-minded people. However, things are never as straightforward as they seem. Britain will be seeing some euro-coloured money very soon in the form of ECB loans to mostly state-owned RBS and Lloyds under the long-term refinancing operation (LTRO).
Do you remember green shoots? What about exit strategies, stress tests, ring-fencing? If you have a very good memory, you may even have a distant recollection of something called moral hazard. The whole history of the crisis, it seems, is one of woeful underestimation of its length, depth and, especially, its cost. Now, at the latest, it must be clear to even the lay observer that delaying a resolution (assuming that a solution exists) is only going to result in the costs going into the stratosphere.
UK politicians are scrambling over each other to avoid what could be a catastrophic own goal: a referendum on the UK’s membership of the EU. One of the tragic truths of the crisis on the continent is that, on the whole, the economic fundamentals of the eurozone – outstanding debt, budget deficits, trade balances, growth, inflation, etc. – are better than the UK’s.
In the middle of an EU debt crisis, especially one where Germany is seen as the paymaster-of-last-resort, it is no surprise that many Germans are nostalgic for their long-lost currency. A couple of surveys recent showed that more than half distrust the euro and think the deutschmark was a better money. One survey revealed that 29 percent believe the eurozone is in danger of breaking up as a result of the crisis.