Bonn Plans Gold Move To Join Emu

The German government thursday took the first steps towards using gold reserves to support deteriorating public finances and allow the country to participate in European economic and monetary union from the planned starting date in 1999. The move came as an experts report was published predicting a DM118 billion (42 billion) shortfall in budgeted revenues between now and 2001.

Theo Waigel, the finance minister, made an unannounced visit to the Bundesbank in Frankfurt to outline government plans for a revaluation of the reserves and a harnessing of the resulting profits to reduce Germanys debt. Although the minister said the planned move was in line with international practice, it may be seen in other European Union countries as a creative accounting device to achieve the criteria to join the single currency.

 

Within Germany, it is bound to be seen as a remarkable policy U-turn. Securing the necessary change in the Bundesbank law will not be easy.

The gold price fell after the announcement, and was fixed in London thursday afternoon at $346.40 an ounce, down from $349.10 a day earlier. After his return to Bonn, the minister denied the government wanted to sell any of the Bundesbanks 95m ounces of gold.

There is no plan to sell one ounce of gold or a single dollar of the monetary reserves, he said. Instead, the government proposed that the reserves should be valued more closely to market levels and the resulting gain in the Bundesbank accounts be paid into an existing government fund to reduce debt arising from German unification.

The gold reserves are valued at DM13.69 billion, more than DM40billion below their market value. Waigel said such a transfer of Bundesbank profits to the redemption fund for historic burdens would count towards reducing Germanys public deficit and debt. It was a legitimate use of savings built up over 50 years, he added. Waigel said the government was considering a further tightening of controls on public spending, more sales of government properties and would press ahead with plans to sell some of its Deutsche Telekom shares this year to plug gaps in the budget.

In separate talks last night, the parties of Chancellor Helmut Kohls coalition were discussing emergency measures.