The World Gold Council has advised Italy to deploy its 2,000 tonnes of gold to break free of EMU austerity dictates.By using the reserves, the world’s fourth largest, to collateralize the first chunk of any losses for bondholders, Italy could raise €400bn or so on the capital markets and determine its own future for a while.
Italy did this in 1974 when it borrowed $2billion from the Bundesbank, using gold as collateral.Portugal did the same thing to borrow $1billion from the BIS in the 1975-1977, and India used its gold to borrow from Japan in 1991.
A joint WGC-Ipsos survey found that 61% of Italian business leaders, and 52p% of the general 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% collateralized by gold could raise around 80% 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.” (Telegraph)
Italy’s former Prime Minister Berlusconi has urged that Italy stops austerity policies and seek growth, the World Gold council has chimed in with a way for Italy to break free from austerity.
The EU has been in the grips of a slump since the Lehman debt crisis triggered a collapse in financial markets. Instead f responding with stimulus the EU has ordered austerity with job cuts, tax hikes and deficit reduction which have led to debt and deficits growing instead.
France was initially agreeing with German Chancellor Hollande about austerity when Sarkozy was President. He loss the election lat year to Hollande who has called for taxes on the rich and increased spending on education.