The per­fect case of the sum being worth a hell of a lot less then its parts.

V

If they’re seri­ous­ly adding the sale of nation­al gold reserves into the troika’s “bailout” “toolk­it” then we’ve offi­cial­ly entered the com­i­cal­ly-evil phase of the troika’s descent into mad­ness vil­lain behav­ior. Or at least rentered it. Because now every­one will ask the obvi­ous ques­tions of what’s going to hap­pen to the oth­er euro­zone nations. Is every­one’s gold reserves at risk? That’s quite a sym­bol­ic move. And that’s part of what makes this such a chill­ing pro­pos­al: it’s real­ly more about psy­chol­o­gy than it is any mean­ing­ful pay­back of cred­i­tors. Even Italy, with the fourth largest gold stash in the world, only has 94 bil­lion euros. Now, 94 bil­lion euros is a lot, but it’s not A LOT in the in the grander scheme of things, at least for a coun­try the size of Italy. With over 2 tril­lion euros in debt, Italy’s 94 bil­lion euros isn’t much more than the 83 bil­lion euros that Italy is expect­ed to spend sim­ply financ­ing its debt this year alone. Con­fis­cat­ing ALL of Italy’s gold is a measly one year inter­est pay­ment.

If the pol­i­cy reg­mine we’re see­ing today was part of the plan back in 2008, before aus­ter­i­ty and “troikas” were pub­licly con­sid­ered even fea­si­ble, there was no way in hell the Berlin could have just come out and said “hey there every­one, we’ve decid­ed to tran­si­tion you all into a much more bru­tal and heart­less social con­tract where fear of pun­ish­ment and ‘dis­ci­pline’ will be the new guid­ing lights of the empire”. That would have caused a rev­o­lu­tion. So instead, we’re just see­ing a seem­ing­ly end­less stream of dis­as­ters where the solu­tion involves one “sur­prise!” change after anoth­er to the “vision” for the future of the EU. The only con­sis­ten­cy in the change is that the rules keep get­ting put in place that will ensure there’s a sys­tem that traps its par­tic­i­pants in debt death-spi­rals.

And at the rate we’re see­ing these “sur­pris­es”, we can pre­dict with con­fi­dence that some­day the EU will indeed reach that Shin­ing City on the Hill. The City where socioe­co­nom­ic human sac­ri­fices ensure the wrath of the mar­ket gods will stay at bay. The a lot of shiny gold in the Shin­ing City on the Hill, but its all owned by this one real­ly rich guy that thinks he’s like the Pope of The Mar­kets. He basi­cal­ly runs the place and is a total dick. You prob­a­bly don’t want to live in the City on the Shin­ing Hill:

If Cyprus can sell gold to help bailout, why not oth­ers?
Reuters Apr 11, 2013, 07.57PM IST

LONDON: Heav­i­ly indebt­ed euro zone nations such as Italy and Por­tu­gal could come under pres­sure to put their bul­lion reserves to work as a result of plans for Cyprus to sell gold to meet its financ­ing needs.

A Euro­pean Com­mis­sion assess­ment of what Cyprus needs to do as part of its Euro­pean Union/International Mon­e­tary Fund bailout showed Cyprus is expect­ed to sell in excess gold reserves to raise around 400 mil­lion euros ($523 mil­lion).

Oth­er strug­gling euro area coun­tries may be pushed to take note. Between them, for exam­ple, Por­tu­gal, Ire­land, Italy, Greece and Spain, hold more than 3,230 tonnes of gold between them, worth near­ly 125 bil­lion euros at today’s prices.

The lion’s share of that — 2,451.8 tonnes — belongs to Italy. But Por­tu­gal and Spain also hold hun­dreds of tonnes and gold is cur­rent­ly trad­ing around $1,558.95 per ounce in spot terms, or 1,189 euros.
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The met­al makes up more than 90 per cent of Por­tu­gal’s for­eign exchange hold­ings, and 72.2 per cent of Italy’s. India, by con­trast, holds less than 10 per cent of its reserves in gold.

Gold sales on their own would be far from a mag­ic bul­let to solve euro zone financ­ing prob­lems: Italy’s entire gold reserves, for exam­ple, are worth less than 95 bil­lion euros, against out­stand­ing debt of around 1.685 tril­lion euros.

But the Cyprus sit­u­a­tion shows that even a rel­a­tive­ly small gold sale may help address severe debt prob­lems. Cyprus’ gold sale would allow it to eas­i­ly come up with around 3 per cent of what it must con­tribute to the bailout.

It is some­thing that has the mar­ket some­what con­cerned giv­en that a big sale would push down the price. Cen­tral bank gold buy­ing was one of the few areas of demand to increase last year at a time jew­ellery, coin and gold-bar buy­ing was on the wane.

Indeed, spot gold post­ed its biggest one-day drop in near­ly two months on Wednes­day after news of the planned sale broke.

“Cyprus may be a one-off, (but) the mar­ket’s con­cern will be that it isn’t, and that oth­er coun­tries will be invit­ed to sell their gold,” one senior gold trad­er said.

“It’s a poten­tial game-chang­er for the mar­ket,” he added. “Giv­en we know that Por­tu­gal reject­ed the most recent aus­ter­i­ty plan, and they have over 90 per cent of the coun­try’s for­eign exchange reserves in gold, does this mean that Por­tu­gal per­haps will be asked to sell some of its gold?”

PROHIBITION

Despite this, poten­tial­ly hefty bar­ri­ers lie in the way of cen­tral banks mak­ing sales to meet financ­ing needs. Arti­cle 7 of the Pro­to­col of the Euro­pean Sys­tem of Cen­tral Banks, for instance, guar­an­tees cen­tral bank inde­pen­dence and free­dom from gov­ern­ment influ­ence.

In oth­er words, if a cen­tral bank does­n’t want to sell its gold, in the­o­ry it can resist.

...

CAP ON SALES

There is also the issue of how much cen­tral banks are actu­al­ly allowed to sell even if they want to.

The Cen­tral Bank Gold Agree­ment, orig­i­nal­ly signed in 1999 and cur­rent­ly in its third incar­na­tion, caps gold sales by sig­na­to­ries at 400 tonnes a year.

...

Lever­ag­ing gold does not nec­es­sar­i­ly have to mean sell­ing it, of course.

Cen­tral banks can also swap gold for cash with oth­er cen­tral banks or oth­er insti­tu­tions through a simul­ta­ne­ous sell spot/buy for­ward trans­ac­tion, with a view to redeem­ing it lat­er.

The World Gold Coun­cil says meth­ods oth­er than sell­ing may offer bet­ter returns for gold hold­ers.

“It is impor­tant that Cyprus explores all the options avail­able to it and out­right sales are not the only one,2 a spokesman for the WGC said. “We believe that the most effec­tive way for coun­tries to ben­e­fit from hold­ing gold is to lever­age its gold as col­lat­er­al for sov­er­eign issuance.”

“A gold-backed bond could raise four or five times the val­ue of Cyprus’ cur­rent total gold reserves — more than 2 bil­lion euros in today’s mon­ey.”

That does­n’t mean, though, that trou­bled coun­tries won’t look at their gold and see a quick fix.

It will be very inter­est­ing to see how these moves impact the gold mar­ket. It’s not an espe­cial­ly large mar­ket com­pared to the over­all size of the glob­al econ­o­my but it has immense psy­cho­log­i­cal val­ue. Gold is just asso­ci­at­ed with “safe­ty” in peo­ple’s minds. If the euro­zone hur­dles are lift­ed against the sale of gold by cen­tral banks caps that’s going to send two very con­flict­ing mes­sages to the mar­kets:
1. Gold is impor­tant to own if you want some­thing con­sid­ered sys­tem­i­cal­ly “safe” by TPTB.
2. If TPTB show a predilec­tion for demand­ing gold sales to pay back nation­al debts, nations might start seiz­ing cit­i­zens’ gold.

This will be a sto­ry to watch. And it looks like there will be plen­ty of future twists and turns and “sur­pris­es” com­ing up. Wolf­gang Schauble is cast­ing new doubts on whether or not the pro­posed EU bank­ing union that’s sup­posed to come into effect in 2014 will be allow­able with­out a treaty change. If the treaty has to be changed that’s sim­ply going to take a lot more time. If if there’s no bank­ing union in 2014 there will be Euro­pean Sta­bil­i­ty Mech­a­nism (ESM) com­ing online in 2014 either. And if there’s no ESM, that means we get to con­tin­ue along mak­ing up new rules with each new bank­ing cri­sis. The brave trav­el­ers will pick up the pace on their jour­ney to Shin­ing City (of beat­ings) on the Hill. Zom­bies can sham­ble. They can also run:

Ger­many puts brakes on EU bank union with treaty call

By Anni­ka Brei­dthardt and John O’Don­nell

DUBLIN | Sat Apr 13, 2013 3:41pm EDT

(Reuters) — Ger­many said Euro­pean bank­ing union will require changes to EU law, in a call that could slow com­ple­tion of the plan designed to under­pin the euro cur­ren­cy.

Speak­ing after a meet­ing of Euro­pean Union finance min­is­ters on Sat­ur­day, Ger­many Finance Min­is­ter Wolf­gang Schaeu­ble said the EU’s Lis­bon treaty had to be changed to allow com­mon rules on shut­ting trou­bled banks — a cen­tral ele­ment of the union.

“Bank­ing union only makes sense ... if we also have rules for restruc­tur­ing and resolv­ing banks. But if we want Euro­pean insti­tu­tions for that, we will need a treaty change,” he said.

Designed to ensure vul­ner­a­ble coun­tries do not have to tack­le finan­cial prob­lems alone, the plan for bank­ing union was one of the bloc’s biggest polit­i­cal steps to sta­bi­lize the euro and pre­vent tax­pay­ers from foot­ing bills for bank res­cues.

“We will not be able to take any steps on the basis of a doubt­ful legal basis,” Schaeu­ble told reporters. “That’s why it’s also cru­cial that we strength­en the net­work of nation­al restruc­tur­ing funds and author­i­ties.”

As a first step towards the union, the Euro­pean Cen­tral Bank is set to start super­vis­ing euro zone banks from July 2014.

This should be fol­lowed by a so-called bank res­o­lu­tion scheme to close or sal­vage strug­gling banks as well as pay for the costs involved. The third and final step would be a coher­ent frame­work across Europe for deposit pro­tec­tion.

Wor­ried the super­vi­so­ry role could com­pro­mise ECB mon­e­tary pol­i­cy inde­pen­dence, Ger­many on Fri­day per­suad­ed EU coun­tries to sign a polit­i­cal dec­la­ra­tion com­mit­ting to future treaty change.

Schaeu­ble also made clear legal change would be nec­es­sary for the uni­fied scheme for tack­ling failed banks.

Chang­ing the Lis­bon treaty, which under­pins the bloc’s law, would be a drawn-out process as it calls for the agree­ment of all mem­ber state — some of which require ref­er­en­da.

It would raise par­tic­u­lar prob­lems for Britain, where euroscep­tics have argued that the coun­try should quit the bloc.

Schaeu­ble has long had reser­va­tions about bank­ing union, which would be a step towards allow­ing the euro zone’s res­cue fund to direct­ly assist banks, a move Ger­many fears might leave it fac­ing the bill for reck­less lend­ing by for­eign banks.

Schaeu­ble said the coun­try of a bank in finan­cial dif­fi­cul­ty must first inject fresh cap­i­tal before direct sup­port from the Euro­pean Sta­bil­i­ty Mech­a­nism (ESM) is pos­si­ble.

Spain’s Finance Min­is­ter Luis de Guin­dos said mem­ber states would pay a min­i­mum 4.5 per­cent of cap­i­tal for trou­bled banks.

“From that point, there would be a bur­den shar­ing to con­verge towards 10 per­cent paid by the mem­ber state,” de Guin­dos said. “This means the ESM will pay for around 90 per­cent and the mem­ber state for 10 per­cent.”

Schaeu­ble also empha­sized Ger­man oppo­si­tion to the cre­ation of a joint deposit guar­an­tee scheme.

So we have Schauble now dan­gling out there the pos­si­bil­i­ty that the ESM won’t be avail­able indef­i­nite­ly AND reit­er­at­ing Ger­man oppo­si­tion to joint deposit guar­an­tees as part of the new bank­ing union. It’s kind of fas­ci­nat­ing how there seems to be an attempt to sys­tem­at­i­cal­ly undo one of the main inher­ent advan­tages of a big union. One rea­son the Unit­ed States has super­pow­er sta­tus is because IT’S BIG. When one part is hurt­ing, the rest of the nation comes to help it and even make long-term invest­ments in the ail­ing region. There are irre­place­able advan­tages to being big....unless you set of rules that sys­tem­at­i­cal­ly nul­li­fy those advan­tages.

It has to be said, grim­ly fas­ci­nat­ing exper­i­ments like what we’re see­ing don’t hap­pen every­day. And there are real eco­nom­ic the­o­ries being put to the testg. Nor­mal­ly, if a nation joins a colo­nial empire it’s because they aren’t giv­en a choice. In this instance, we seem to be see­ing an attempt to sell the EU pop­u­lace on the idea that some aus­ter­i­ty now will avoid aus­ter­i­ty in the future. THAT’s the EU New Deal. Some pain and some gain now in exchange for less pain in the future. Once the euro­zone economies are “har­mo­nized” ade­quate­ly, the mag­ic of “Ordolib­er­al­ism” will take hold across the con­ti­nent. At least in the­o­ry. So what hap­pens if the the­o­ry does­n’t work? Ever? Ordolib­er­al­ism can’t just work for Ger­many any­more. It has to work for the whole con­ti­nent. And giv­en that Ger­many’s eco­nom­ic suc­cess is heav­i­ly root­ed in an export-based strat­e­gy — and Ger­many’s high-tech export sec­tor is some­thing that sim­ply can­not take place across Europe — it remains to be seen how an Ordolib­er­al regime will work for bro­ken economies that are only going to be well-suit­ed for low-wage exports. The inter­nal econ­o­my that invovlves things like edu­ca­tion and health­care aren’t real­ly allowed under Ordolib­er­al rules until after you’ve found that high-val­ue export niche. The devel­op­ing world has been try­ing to export its way out of pover­ty for a long time using this strat­e­gy and it’s very unclear that this strat­e­gy real­ly can work for every­body.

It’s part of why the euro­zone cri­sis is so trou­bling for the world: We live in a world where there is sim­ply too much tech­nol­o­gy and labor over­ca­pac­i­ty for every­one to have a well-paid 40-hour a week job. Fig­ur­ing out how to fair­ly share resources with­out freak­ing out about “moochers” and unem­ployed peo­ple is going to be vital over the next cen­tu­ry and human psy­chol­o­gy REALLY hates help­ing “moochers”. One of the real intrin­sic val­ues that gold has is that it’s good at gen­er­at­ing a shared con­cen­sus: Because pure gold always weighs the same and looks the same it’s the type of thing that peo­ple all over the world can make agree­ments over. Form­ing that shared con­sen­sus is the real “tech­nol­o­gy” employed when mon­ey is in use. It’s a social tech­nol­o­gy. Com­ing up with a new shared con­cen­sus that involves a lit­tle some­thing called “shar­ing” is one of the great chal­lenges of our era of not enough jobs and real nat­ur­al resource aus­ter­i­ty. The pro-aus­ter­i­ty par­a­digm we’re see­ing emerge with each one of these new EU “sur­pris­es” is exact­ly the kind of anti-shar­ing dark age con­sen­sus that human­i­ty needs to avoid if we don’t want to have severe aus­ter­i­ty in the future.

So is there a Plan B if the euro­zone is still a bas­ket­case in 5 or 10 years or is Europe des­tined to end­less chid­ing by its elites about how the peo­ple just aren’t being aus­tere enough for the mag­ic of the mar­kets to work? Con­sid­er­ing that we’re repeat­ed­ly told that there are years of aus­ter­i­ty in store for these nations you have to won­der if bro­ken economies for years is part of the unspo­ken cur­rent plans that the pro­les aren’t yet ready to hear. Maybe that’s the final “Sur­prise!”