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Ambrose Evans-Pritchard: Italy should use gold reserves to change EMU policy

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Published : May 03rd, 2013
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Category : GoldWire

By Ambrose Evans-Pritchard
The Telegraph, London
Thursday, May 2, 2013

The World Gold Council has advised Italy to deploy its 2,000 tonnes of gold to break free of European Monetary Union austerity dictates.

By using the reserves -- the world's fourth largest -- to collateralise the first chunk of any losses for bondholders, Italy could raise E400 billion or so on the capital markets and determine its own future for a while.

Italy did this in 1974 when it borrowed $2 billion from the Bundesbank, using gold as collateral.

Portugal did the same thing to borrow $1 billion from the Bank for International Settlements in the 1975-1977, and India used its gold to borrow from Japan in 1991.

A joint WGC-Ipsos survey found that 61 percent of Italian business leaders and 52 percent of the public would support the idea, with only a small minority opposed.

The report said:

"With Italy still facing significant financial challenges, national assets -- such as gold reserves -- present an opportunity to buy some vital breathing space.

"Gold-backed sovereign debt, or 'gold-backed bonds,' is issued debt that is underpinned by gold collateral. By using a portion of their gold reserves in this way, sovereign states could borrow more cheaply, without selling an ounce.

"This use of gold would help sovereign governments to regain the confidence of the bond markets and lower funding costs. Nations could raise between four and five times the value of their gold reserves -- a bond 20 percent collateralised by gold could raise around 80 percent of Italy's two-year refinancing needs.

"This would buy time for growth to take hold. It would lower sovereign debt yields without increasing inflation and would give Italy time and resources to work on economic reform and recovery. Using gold for the purposes of sovereign debt issuance would allow greater flexibility beyond austerity."

This is exactly the sort of thinking that is needed in the occupied EMU states, and Italy has been under occupation since the ECB effectively toppled the elected the government in the coup d'etat of November 2011 -- with the active collusion of President Napolitano, a former Stalinist who later transferred his ideological mania to the EU Project.

Such a plan has been proposed by Alessandro di Carpegna Brivio at Camperio Sim.

However, it would require the new premier, Enrico Letta, to tell Europe to jump in the lake, since "reflation in one country" would violate the EMU club rules.

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Latest comment posted for this article
Pretty tough to beat gold as collateral. However Mr A E-P as well as most everyone else just doesn't get it. When you're grossly in debt, borrowing more is never a good idea. Now couple this with the idiotic idea that economic growth can grow indefini  Read more
overtheedge - 5/3/2013 at 3:50 PM GMT
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Pretty tough to beat gold as collateral.

However Mr A E-P as well as most everyone else just doesn't get it.

When you're grossly in debt, borrowing more is never a good idea. Now couple this with the idiotic idea that economic growth can grow indefinitely and the stage is set for total collapse.

But for the sake of argument, let us assume borrowing against gold brings in needed cash for operating loans to productive businesses. Who is all this additional production going to be sold to? Either the prospective buyer is already drowning in debt (developed countries) or they have no money (third world countries).

Surely you don't think the 1% can and will buy all the world's products.

With the rapid rise of automation and robotics, there will be few job opportunities for unproductive, STEM illiterate bipeds outside of government bureaucracies.

Never encourage stupid people to breed.