During the present financial mayhem, rumours are coming out of Germany and elsewhere that the euro may be doomed. It is already under threat, like many others. It was an open secret the Germans went into the euro for political reasons. The then Chancellor Kohl would listen to no argument. The next step towards a federal Europe was far more important than economic considerations. So what would happen if the euro did collapse? Apart from tearing the EU apart, that is… Remember the Germans did not melt down their Dmarks nor burn their notes, despite all eurozone members being required to destroy their currencies within a year. The Germans then bought huge quantities of gold to add to their already substantial holdings. What better to back a return to the Dmark, if the need ever arose? All that happened, of course, not long after Gordon Brown, then British Chancellor of the Exchequer, started to meet his obligation to transfer Britain�s gold and dollar reserves to Frankfurt, as required under the Maastricht Treaty, which laid title to the lot. By selling more than half the UK�s total gold holdings at the time, 415 tons, at a mere $290 an ounce he raised a paltry �4 billion. Today gold is at $750 an ounce, but that�s another story. Britain was paid in euros � the net effect being that Brown had thus transferred UK gold reserves to Frankfurt. He had done so without a bullion truck ever crossing the Channel, and hardly anyone had noticed the true purpose. What he described at the time as a “purely commercial decision? had avoided a potential flashpoint if the British people had realised the facts. Now, several years later, and with financial mayhem all over the world, Germans drawing euros out of their local bank are checking to see if they were printed in Germany and therefore exchangeable for the Dmark if the eurozone collapses. Tells you everything, really. Watch this space. I have just sent a letter to the president of the European Central Bank, asking him to comment on recent events: Jean-Claude Trichet president European Central Bank Frankfurt Sir Given that the eurozone does not have a single supervisory body overseeing the hundreds of banks and other financial institutions in the area, how would the currency have survived a series of events like that seen recently in the United States of America and the United Kingdom? Admittedly the trigger is unlikely ever to be the same, since home-ownership is not as important to Europeans as it is to Anglo-Saxons. Nevertheless the underlying question must be valid. Is it not the fact that opaque and contradictory regulations in different eurozone countries about the insolvency criteria of financial institutions, and the fundamentally different methods and standards applied to winding up procedures, must be a source of great concern. So too must be the understandable reluctance of taxpayers in one country or countries to allow their respective governments to bail out banks based in others. Surely, as a result of these important pressures, to say nothing of the administrative inconsistencies between eurozone countries, such a financial meltdown in your area would be uncontrollable and ultimately catastrophic? If you disagree, what solid evidence can you provide to dispel this threat? Ashley Mote
To respond to, or comment on this Email, please email ashley.mote@btconnect.com
Monday, 10 November 2008
October 29th, 2008
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