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Posts Tagged ‘ECB’

The world economy: Powering down

Posted by Ram Kumar Shrestha on July 7, 2012

More months of uncertainty about the euro area will weigh on the global economy

EUROPEAN leaders delivered rather more progress in tackling their interminable debt crisis than had been expected when they met in Brussels on June 28th and 29th. They decided, among other things, to allow the new permanent bail-out fund to recapitalise banks in ailing economies directly rather than via their governments. They also enabled rescue funds to buy the government bonds of struggling countries without imposing such strict conditions as before.

The euro promptly rose; stockmarkets regained some vim; the oil price spiked (see article). Government-bond yields fell in Spain and Italy; they also tumbled in Ireland on expectations that it will gain some retrospective relief from the heavy costs of its banking clear-up. In response, the Irish government decided to raise money by issuing short-term bills on July 5th, its first such auction since 2010.

But the June summit also delivered rather less than the market rally suggested. In theory, the agreement promises to break the self-reinforcing link between weak governments and weak banks. In practice, that will not happen until the European Central Bank (ECB) is put in charge of euro-area banking supervision, which may take a lot longer than the planned six months. Before then a deal stitched together in the bleary hours could well snag on legal difficulties about redefining the permanent fund’s remit without changing the treaty that set it up, or on political objections in smaller northern economies—Finland, for example, doesn’t like the idea of using the rescue funds to buy government bonds in secondary markets. Meanwhile, Greece has lost none of its capacity to cause trouble, as a new, weak government tries to extract concessions from creditor nations. Read the rest of this entry »

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Europe’s Elusive Gold Reserves: Are Greece, Portugal Sitting on Billions of Dollars?

Posted by Ram Kumar Shrestha on July 4, 2011

By Daniel Eckert and Holger Zschäpitz / Die Welt / Worldcrunch

This post is in partnership with Worldcrunch, a new global-news site that translates stories of note in foreign languages

Jonathan Nourok / Getty Images

into English. The article below was originally published in Die Welt.

The first thing any insolvent private person is forced to do is relinquish the family silver. But other rules seem to apply to governments. Whether they’ve been living above their means for a few years or for decades, certain countries hold on tight to their assets, declare themselves unable to pay back their debts and turn to other countries for help.

The European Union has seen many an example of this. Right now, Greece is negotiating with the troika of the E.U., the European Central Bank (ECB) and the International Monetary Fund (IMF) for a new rescue package while Athens sits on an impressive 114-ton stash of gold, about what four large, fully loaded trucks could carry.

The gleaming bars in the vaults of the Greek central bank are worth $5.8 billion. If Athens were to sell that gold, the Greek state would theoretically be able to meet at least part of the debt payments due soon without any outside help.(Read how the Greek economic crisis is threatening the euro.)

Another country in crisis, Portugal, also holds a significant amount of precious metal dating back to the days of António de Oliveira Salazar’s regime. Instead of aid, Lisbon could have converted its $19 billion worth of gold into cash.

Nick Moore, chief commodities strategist at the Royal Bank of Scotland in London, reports that a question often asked by bank clients is why these governments don’t sell some of their gold. After all, it is recognized worldwide as an asset that can be sold even in tough economic times. The gold in the central banks of euro-zone members is altogether worth some $545 billion.

With that, 4.5% of Euroland’s $12 trillion public debt could be paid off in one fell swoop. In relation to its debt, Portugal is particularly gold rich. Lisbon could put 383 tons of it on the market and make $19.3 billion at the present rate. Read the rest of this entry »

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