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Power struggle between Rome and the ECB
Who owns Italy’s gold treasure?
A controversial plan by the Meloni government for Italy’s gold reserves is alarming the European Central Bank. Critics fear a precedent that could shake the entire euro system.
What does Italy’s government plan to do with the gold?
MPs from Prime Minister Giorgia Meloni’s right-wing “Fratelli d’Italia” party want to make Italy’s large gold reserves “national property” and have proposed a change to the budget law. Specifically, they wanted to insert this sentence: “The gold reserves managed and held by the Banca d’Italia belong to the State on behalf of the Italian people.”
Meanwhile, “the state” has been removed from the draft law – now it only says that the gold reserves “belong to the Italian people.” The latest version also expressly refers to the EU rules to protect the independence of the central bank.
What are the Italian government’s motives?
For years, right-wing politicians in Italy have been calling for the central bank’s gold reserves to be declared public property. The background is that the Banca d’Italia is formally a private central bank – its shareholders are banks and insurance companies. Today’s Prime Minister Meloni, as an opposition politician, raised the danger of a possible “expropriation” of the Italian people more than ten years ago.
However, the private shareholders of the Banca d’Italia legally and factually have no influence whatsoever on monetary policy and the use of gold reserves. Critics accuse Meloni of being primarily concerned with bringing one of the world’s largest gold reserves under state control. In the next step, this could pave the way for the government to sell the precious metal – for example to plug Italy’s huge budget holes.
Why is the ECB getting involved?
The alarm bells are ringing among the monetary authorities at the European Central Bank (ECB) in Frankfurt in view of the Italian proposed law. In an official statement at the beginning of December, they first asked the Italian authorities to “reconsider” the draft law. ECB President Christine Lagarde made it clear that this was “no trivial matter”. Ultimately, confidence in the stability of the euro and in the credibility of the reserves also depends on the fact that political intervention is ruled out.
The ECB also signaled this week that it also considers the revised wording of the legislative initiative to be problematic. It is still not clear to the monetary authorities what the specific purpose of the draft law is. They see the institutional independence of the Banca d’Italia at risk and point to the EU treaties: Within the framework of the European System of Central Banks (ESCB), the holding and management of gold reserves falls under the exclusive responsibility of the national central bank of each member state.
Is the euro in danger?
If the Italian government were to gain access to the central bank reserves, not only the institutional independence of the Banca d’Italia would be in question. Reforming the ownership structure of the Italian central bank could set a precedent for other countries in the ESCB.
If Rome were actually able to sell parts of its gold reserves, for example to plug budget holes, it would be tantamount to a dam bursting. Investors on the stock exchanges would have enormous doubts about the stability of the euro. Trust is the most important currency in the financial markets.
How much gold does Italy have?
The Italian central bank has one of the largest government gold reserves in the world – only the USA and Germany have more. The Banca d’Italia holds 2,452 tons of gold. For comparison: the US Federal Reserve has 8,134 tons of gold, the German Bundesbank has 3,350 tons.
After the Second World War, Italy only had 20 tons of gold. The Nazis had looted most of the reserves with the help of the Fascist Italian government. But thanks to high export surpluses in the second half of the 20th century, the central bank’s foreign exchange income rose massively – part of it was invested in gold. The amount of Italian gold has remained largely unchanged for many years – but its value has recently risen rapidly.
And how much is Italian gold currently worth?
The Italian gold reserves are currently worth around 280 billion euros – which corresponds to almost 13 percent of Italy’s gross domestic product. The background is the sharp rise in gold prices.
In October, the yellow precious metal reached a record high of $4,381 an ounce on the London Stock Exchange, after standing at around $2,600 at the beginning of the year. Gold is currently up over 60 percent since the beginning of the year.
What’s next?
According to media reports, Italy’s Economy Minister Giancarlo Giorgetti now wants to write a letter to ECB boss Lagarde to explain the Italian government’s motives: Accordingly, Rome has no plans to undermine the independence of the Italian central bank. It is a symbolic formulation – and not a change in administration or accounting law.
“We are not interested in selling the gold or using it for other purposes. This is a statement of principle with which we do not want to trigger an international affair,” said Marco Osnato, MP from Prime Minister Meloni’s Fratelli d’Italia party. Whether this will reassure the ECB remains to be seen.
What would Italy gain from selling its gold reserves?
A simple calculation makes it clear: Even if Italy were to sell all of its gold reserves and thereby earn around 280 billion euros, the government could not even begin to solve the debt problem.
At more than three trillion euros, Italy’s national debt is more than ten times as high. Within the EU, only France has an even higher absolute national debt.
What lessons can be learned from previous government gold sales?
History provides a cautionary tale: under Prime Minister Tony Blair and his Chancellor of the Exchequer Gordon Brown, Great Britain sold almost 400 tons of gold from 1999 onwards at an average price of $275 per troy ounce. This brought about $3.5 billion into the UK’s coffers.
A big mistake, because the sales took place at historically low prices: gold was at a 20-year low at the time – commentators later spoke of the “brown bottom”. A significant increase in value was wasted; the price of gold has since increased more than fourteen-fold. For comparison, today the gold holdings sold by Brown would be worth more than $50 billion.
