G-20 Demands German Gold To Keep Eurozone Intact; German Central Bank Tells G-20 Where To Stick It

Tyler Durden's picture

Going back to the annals of brokeback Europe, we learn that gold after all is money, after the G-20 demanded that EFSF (of €1 trillion "stability fund" yet can't raise €3 billion fame) be backstopped by none other than German gold. Per Reuters, "The Frankfurter Allgemeine Sonntagszeitung (FAS) reported that Bundesbank reserves -- including foreign currency and gold -- would be used to increase Germany's contribution to the crisis fund, the European Financial Stability Facility (EFSF) by more than 15 billion euros ($20 billion)." And who would be the recipient of said transfer? Why none other than the most insolvent of global hedge funds, the European Central Bank.

Also, in addition to gold, the ECB had set its eyes on that other "fake" currency that DSK had succeded in protecting throughout his tenure, all his other undoings aside, "The Welt am Sonntag newspaper, citing similar plans, said 15 billion euros would come from special drawing rights (SDR) that the Bundesbank holds." Naturally, these discoveries prompted a prompt and furious rebuttal from the very top of German authorities: "Germany's gold and foreign exchange reserves, which the Bundesbank administers, were not at any point up for discussion at the G20 summit in Cannes," government spokesman Steffen Seibert said. The WSJ adds, "A plan to have the International Monetary Fund issue its special currency as a powerful weapon in Europe's efforts to contain the widening euro-zone debt crisis was blocked by German Chancellor Angela Merkel, according to a report in a German newspaper."

There are three observations to be made here: i) when it comes to rescuing insolvent countries, Germany is delighted to sacrifice euros at the altar of the 50-some year old PIIGS retirement age; ask for its gold however, and things get ugly; ii) the Eurozone, the ECB and the EFSF are dead broke, insolvent and/or have zero credibility in the capital markets, and they know it and iii) due to the joint and several nature of the ECB's capital calls, while Germany may have had enough leverage to tell G-20 to shove it, the next countries in line, especially those which are already insolvent and will rely on the EFSF for their existence once the ECB's SMP program is finished, may not be that lucky, and in exchange for remaining in the eurozone, the forfeit could well be their gold.

WSJ brings details on how German SDRs would be used as a temporary (temporary as in European financial short selling ban, and temporary reduction of initial margin to maintenance for everyone to appease MF Global clients) backstop for Europe:

The idea of using SDRs to fight financial contagion isn't new. When the collapse of Lehman Brothers in 2008 unleashed a financial crisis, the G-20 in 2009 approved a $250 billion SDR allocation to help backstop efforts to fight the spread of the crisis.


The European Central Bank has been buying euro-zone bonds in an effort to keep borrowing costs of weakened members from exploding. But the ECB's efforts are considered by some experts to be outside of its central mandate to maintain price stability. And the ECB has said that its special measures - buying euro-zone debt -- should be temporary and limited in scope. That is another reason why some people are advocating the IMF play a greater role in propping up weakened euro-zone members and become the lender of last resort.


Speaking to reporters at the close of the Cannes summit, Merkel indicated that G-20 leaders agreed in principle that the IMF and EFSF could work together, but the summit could not agree on any specifics.


"We have an interesting process ahead of us and the discussion is not yet concluded," she said.

Reuters brings more on the the logical German reaction to the EFSF and ECB's extortion attempts:

"We know this plan and we reject it," a Bundesbank spokesman said.


Seibert said several partners had raised the question in Cannes whether SDRs could be used to strengthen the EFSF but Germany had rejected this plan and discussions at Monday's Eurogroup on Monday would not discuss this topic.


The newspapers had said the issue was taken off the agenda at the G20 following Bundesbank opposition but that it would be debated on Monday at a Eurogroup meeting of euro zone finance ministers.

Why will it be debated? Because when at first you don't succeed, try, try again. Germany may be crossed off the list, but here is who is next in order of appearance. Sooner or later, Europe will stumble on that one "leader" whose gold is less valuable than their political stability, because after all, a "united", "EMUed" Europe has the biggest MAD trump card of all.

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natty light's picture

Why would they want an inedible relic?

knukles's picture

That's why my wife likes it.

TruthInSunshine's picture

I do believe, and I'm not just saying this as hyperbole, that Germany is at the point where either the people just give in and accept what they know will be a fate of massive inflation (as the ECB inevitable must hyper print euros to pay off EU sovereign bonds and recapitalize EU private and quasi-private banks, not to even mention the derivative exposure that must be satisfied held by such institutions) and falling living standards, as they are sacrificed in order to kick the PIIGS+France+UK can down the street for a year to several years at most (so, two generations of Germans' financial lives will be sacrificed to bail out the EU for a few years), OR, the German People are about to rise up against Merkel and any politician that allies themself with Merkel or anyone endorsing that the EU remain intact.

I don't see any daylight in between those two possible outcomes, as the only way that the EU can be salvaged for a few more years is by sacrificing the savings and capital of those in Germany. How can the EU be salvaged for more than a year, at best, without such a sacrifice of Germans?

CrazyCooter's picture


I think its the latter.

General revolt in the US as well.

WWIII is the only alternative that doesn't including hangings via lamp posts.




Motley Fool's picture

I think they will take door number three.

Sean7k's picture

The NY FED already has it and they aren't giving it back.

GetZeeGold's picture



Occupy Fort Knox.


Nothing else is going on there.

cowdiddly's picture

Protesters get close to Fort Knox and they will make the Oakland Police look like the Red Cross. Never will they allow anyone to see the cobwebs and tungsten bars.

Big Slick's picture

Most of the US govt's gold is 800 feet under the Fed building in NYC.  (7,000 metric tons... Knox has 4,500 metric tons)


strannick's picture

The Germans benefitted for a couple of decades by being able to cheaply export to the Piigs countries while they had a common cheap currency. If PIIGS had to use their own cheap currencies, they could never have afforded Germany's exports, and Germany wouldnt have had its great boom.

Germany accepted this inequality when it was in their favor, now their bitching when the shithawks come home to roost. The main thing from this is that no one want to give up their gold.

jm's picture

I would only add that if it is the position of Germany to not provide collateral to make periphery debt serviceable, then they shouldn't pressure these countries with whatever threats to not default.


gmrpeabody's picture

All our gold are belong to you..... 9!

CTG_Sweden's picture





The Germans benefitted for a couple of decades by being able to cheaply export to the Piigs countries while they had a common cheap currency. If PIIGS had to use their own cheap currencies, they could never have afforded Germany's exports, and Germany wouldnt have had its great boom.


Germany accepted this inequality when it was in their favor, now their bitching when the shithawks come home to roost. The main thing from this is that no one want to give up their gold.






It would have been no problem for Germany to print money and thereby depreciate the D-mark. The money printed by the Bundesbank could have been lent to high-tech companies, students and so on at low interest rates and thereby reducing costs for households and companies. This would have been even better for the German economy.


I think that politicians in Europe now are too much concentrated on punishing Germany for its anti-Semitism in the past and toppling Berlusconi since his power in the past, and perhaps also in the future, partially has depended on nationalists in northern Italy and ex-fascists.


The most simple solution to the debt problems in Europe would be to transform the monetary union into a union with less political ambitions and more focus on solving practical problems.


My assessment is that the least painful solution to the debt problem is to print money and lend that money at very low interest rates to Italy and Spain. Especially if the EU would require that all oil must be paid in euros rather than other currencies. That would be the same policy as the United States currently is practising.


If they don´t impose a euro requirement for oil imports I guess that the result will be inflation. That will harm Italian small savers. On the other hand they have so far benefited from lower taxes and more government spending than the country actually can afford. But the political price for Berlusconi and his buddies would be far smaller if the Italians would pay for the government debt by inflation rather than by higher taxes and less government spending. And those who do not like Berlusconi´s allies prefer a solution which means a high political price for Berlusconi.


Another problem is that Germany does not like inflation and that their export companies do not need a depreciated currency like other countries do. Solutions that mean more inflation and that Germany´s tax payers may lose hundreds of billions of dollars are unattractive solutions to Germany. I suppose that is why the EU so far has chosen such solutions.


I realize that it would be bad for the US economy if the EU would require that all imported oil should be paid in euros. This would reduce the amount of USD that the world economy can absorb. Therefore, the US would have to print less or face more inflation.


However, if the eurozone would be shrunk to the countries which are most enthusiastic about the euro or need cheap, printed money to pay for their government debts, respectively, the amount of needed printed euros would be limited. Why not let Italy, Spain, France, Belgium and a few other countries continue with the euro and let other countries, Germany for instance, have their own currencies? Other EU countries could contribute indirectly to the prosperity of the eurozone by a commitment to only buy oil for euros during a transitional period.


Furthermore, I think the US should be more willing to accept a smaller eurozone that prints money in the same manner us the US.


I think that an important problem in Europe and North America is that politics is not decided by pragmatic people to a sufficient extent. There are too much fanatics. These people probably feel that lobbyists and the big media will treat them more favourably if they act like fanatics. It is not just the debt problem in Europe which is an example of that. Take the proposed attacks on Iran, for instance. They actually think that it is legitimate to nuke Iran because they are perhaps are designing some nuclear devices on the drawing board. Even though I think that it is perhaps more likely that they will attack Pakistan rather than Iran since they already have nukes and since Pakistan would be caught by surprise and since it is less unlikely that domestic, capricious radicals will be able to seize nukes in Pakistan, I still think that openly talking about creating a nuclear disaster in an oil producing country indicates that many European and American politicians do not prioritize economic stability and prosperity sufficiently but rather other, political strategic objectives. They are actually willing to sacrifice the economy for other political objectives. This is a typical hallmark of fanatics. There are European politicians like the late British minister of foreign affairs Gordon Cook and the American politician Ron Paul who either are more pragmatic or prioritize other objectives. As regards Ron Paul, he seems to be driven by a wish to return to the original principles of the American society which to me seems to have been as much freedom as possible for individual citizens and that the individual should be affected by government decisions to the smallest extent possible. Ron Paul can probably not be characterized as "pragmatic". But he does not prioritize the same objectives as most other leading American and European politicians. However, I think that his idea that the Fed should stop printing money is unrealistic, especially if he thinks that should happen instantly. I think that the US must raise import duties, impose tax breaks on domestically produced energy, reduce the oversupply to the labour market, raise taxes and cut government spending before the US can stop printing.


DoChenRollingBearing's picture

+ 1, very good, but I could not get your green arrow to work.  Nice analysis.

Bringin It's picture

DCRB - word is that posts that begin with italics, can not be 'arrowed' up or down.  Breaks the javascript maybe?

Edit - appearently, sometimes breaks the 'arrow' mechanism, as the up arrow just worked on this comment.

Another edit - Another example of the leading-italics-malfunction-syndrome.  http://www.zerohedge.com/news/g-20-demands-german-gold-keep-eurozone-int...


schadenfreude's picture

Couldn't agree more.

+1 Green from me

11b40's picture

Thank you for your thoughtful and interesting commentary.  Euros for oil, indeed.

Oh regional Indian's picture

Hey Big Slick, did you know that a part of the area under the NY Fed is foreign territory? It's in the minutes of an FOMC not so long ago(while Greenspan was in-charge).

My bet is German Gold is safe in the fourth Reich's hands. Wherever it is.

And all these CB numbers are the tip of the iceberg.



FranSix's picture

Mario Draghi, the new European Central Bank governor, is a Goldman Sachs alumnus. Also a former head of the Bank Of Italy.  His focus and concentration is privatisations.


TruthInSunshine's picture



You both mean:


As in, provisions of real, valuable assets, culled from the aftermath of the destruction from the very explosives they've rigged the global economy with.

As it was with AIG, the Abacus/Timberwold/Hudson, and many other fiascos (or should I say fiatscos), The Vampire Squid is hoping to profit from being a false prophet yet again.

Big Slick's picture

Interesting.  Did not know that.  Most of what I know about the NY Fed building I learned from Die Hard 3.

"Yippee kiyay m---f---r."

Eally Ucked's picture

How you got those numbers? As far as I know there is only a bit over 8000 metric tons in possesion of US gov.

Maybe that source is not correct but .....


cosmictrainwreck's picture

thanks for that........ROFLMAO with the three-decimal-place troy oz! they count all the goldust, too, huh? Am so grateful for my diligent gubbmint accountants.... so why won't they let anybody verify anything? "we" should at least know what % haircut "we" take on "our" real vs. bullshit imaginary "ownership"

DoChenRollingBearing's picture

Eally, cosmic,

+ 1 for each of you.  Indeed, why not let some journalists and maybe an auditor and respected PM specialists go along with the .gov accountants?

CrazyCooter's picture

Most of the US govt's gold is 800 feet under the Fed building in NYC.  (7,000 metric tons... Knox has 4,500 metric tons)




US Gold is at Ft. Knox (built explicitly for the purpose of holding gold) and West Point.

If you have information, with any credibility, other than your spittle-on-the-chin, please share with the community.




CrazyCooter's picture

Sorry, quick correction. The US Government gold is 8k tons and is at West Point and Ft. Knox.

Perhaps you refer to private gold held by US banks, which has ownership both domestic and international. In fact, many foreign nations house their gold in New York. Total "private gold held by US banks" is 4k tons if I understand correctly.




Everyman's picture


You mean the Fort Knox security would shoot all those people to prevent them from finding out it is just an empty building???

cosmictrainwreck's picture

probly just rubber bullets, not live ammo... then the tear-gas & etc etc; round 'em up haul 'em off... no problem. It's a "national suckurity" issue, ya know?

trav7777's picture

The FRBNY probably has already LENT OUT Germany's gold...this is going to be the dirty secret of all secrets

DoChenRollingBearing's picture

Then the FRBNY would have to call its gold back.  THAT would be an interesting thing to watch.  Gold would leap...



CrazyCooter's picture

Physical gold rarely leaves the vault during leasing.

What happens is a trading of paper claims (on paper claims (on paper claims (on paper claims))). So, when the system blows up, the gold is still right where it started and all the paper is still just paper.

Not saying physical depositors can't lose, just saying it is generally how it works with physical deposits (if you are a big boy like the US Government).



daxtonbrown's picture

[General revolt in the US as well.]

It is obvious we are already in a simmering civil war, the Tea Partiers and OWSers are just choosing up sides, along with the union goons. It is a civil war over debt bondabe (i.e. slavery) of your children and grandchildren as far as the mind can see. This cannot stand, the sovereigns must default as we all know. We are just now beginning to realize that if the revolt doesn't succeed we all end up morelocks down in the mines.


matrix2012's picture


did you mean the USSA will bomb IRAN  as a way out of this crisis? Another dirty trick to divert the people's attention from the immense ongoing difficulties??

Your conjecture seems to pose some legitimacy cuz the Israel has been crying out very loudly about the option to attack Iran.

Here's whatever the official bark for the mass consumption :)


RiverRoad's picture

Hmmm, now if Iran is nuked, just which way will the fallout blow?  Should be interesting.

matrix2012's picture

Die Welt runs a hawkish article about the possibility of an Israeli attack on Iran:



AustriAnnie's picture

And, while everyone is talking about Iran, we're sending troops to Uganda.  And looking at Somalia and Nigeria.  Oil, people, oil!  Africa is where the empire sees resources to grab.

They have many options to play their war games, it doesn't have to be Iran.  

Hell if I know what they'll do.  But the MSM is playing up this Somalia/Nigeria "terrorist" group that is so conveniently connected to the groups we're already at war with.  

CrazyCooter's picture

It was tongue-in-cheek.

The US will not "nuke" Iran, however I do very much expect "the west" to "replace" the government which happens to exist over the territorial area of "Iran".

Doing so will take MENA oil off line as all hell breaks lose. The powers that be in various countries will have the "excuse" they need to take "martial law" type powers and the current domestic rebellions will therefore "take a back seat".

Once WWIII gets going real good, its about starving half the world (i.e. the half that can't grow their own food with their own energy - or defend said production from hungry neighbors).

Plenty of resources to feed the beast after that happens! Just think of how many debt instruments are suddenly worth ... nothing!

I am still not sure if gold gets a front seat if this plays out as such.



Ganja Jane's picture


The awakened ones have seen it coming. The propaganda machines are in full swing.

Aren't sanctions part of war?


matrix2012's picture

we are all living in a very sickening world... a very pathetic one full of twisting  >:)

“When plunder becomes a way of life for a group of men living together in society, they create for themselves, in the course of time, a legal system that authorizes it and a moral code that glorifies it.” — Frédéric Bastiat (1801-1850)



lolmao500's picture

Except the ECB cannot print. Not now anyways. They would have to change the treaties.

Libertarian777's picture

because they always follow the treaties???

like especially the 'no bailout' clause... as well as the 'deficit not to exceed 3 (?) % GDP' etc. etc.

Marco's picture

Well they obviously can, they have been shoring up bond prices after all. Despite common wisdom here though, it's quite clear that the ECB leadership is very reluctant to keep going on the printing/inflation route.

goldfreak's picture

With Mario in charge? print away

masterinchancery's picture

So far, you mean. The Schumer has not yet hit the fan.

midtowng's picture

I wonder if anyone else noticed from that chart that Italy is one of the major holders of gold in the world? They are also in trouble.

I could see Italy being forced to sell lots of gold on the market. It's what the far east did in 1997 right before their currencies collapsed. It also crushed the price of gold for several years.

jesse livermoore's picture

they could push there entire pile onto the market, the chinese Gov. would would be happy to  trade in there 2 trillion dollars.   there will be no price collapse

matrix2012's picture


According to wiki/Gold_reserve, Italy at #3 position has as many as 2,451.8 tonnes (World official gold holding, December 2010).

At a price of US$1900/oz., reached in September 2011, one ton of gold has a value of approximately US$60.8 million.

So roughly Italy's gold reserve has value of app. 2452 X US$ 61 millions = USD 150 billions...

Is it enough for Italy to sell off all of its gold reserve to tackle its current financial problem? Will it be any help then? :)