With the ECB ruling out the use of its balance sheet as a means of recapitalising Europe’s increasingly fragile banking system, the search is on for alternatives. The Daily Telegraph ran an article earlier this week looking at Germany’s proposed European Redemption Bonds as asolution to the euro crisis.
Under the proposal southern European debtor states would pledge their gold reserves as collateral under a EUR2.3trn stabilisation plan. The SDP opposition supports the idea and the Greens have said they will block ratification of the Fiscal Pact unless this is adopted. The plan splits the public debts of EMU states. Anything up to 60% GDP would remain sovereign and anything over that would be transferred gradually into the redemption fund. The fund would gradually retire the debt over 20 years. Whilst Germany would suffer higher credit costs – (Jefferies calculates it would cost Germany 0.6% GDP annually) – it would have the security of gold lodged to the fund, and is therefore acceptable to the German public. Germany’s Five Wise Men also say this cost to Germany would be modest compared with the growth that would come from a disciplined economy. The fund would also relieve the ECB of its need to monetise to bail out Europe, again something Germany desires.Read it at Pinetree Capital | MacroBits
A possible remonetisation of gold?
by Marshall Auerback
(h/t Kevin Fathi via email)
The old gold fetish rears its head out of the swamp of the history of failure and disaster.
"Any “United States of Europe” will in become a de facto ”United States of Germany” if this proposal is a go.