Why Germany Wants To See Its US Gold

by Sven Böll and Anne Seith
Spiegel Online

For decades, almost half of Germany's gold has been stored deep below the Federal Reserve Bank of New York. Now, with the euro crisis swirling, German politicians are asking their central bankers to take stock of the reserves. Some even say that the gold should be shipped home.

Bundesbank President Jens Weidmann wanted to personally convince Peter Gauweiler that the German gold was still where it should be. Early this summer, the head of Germany's central bank took the obstinate politician from the conservative Christian Social Union (CSU), a party that is a member of the government coalition in Berlin, and a number of his colleagues into the Bundesbank's inner sanctum: the gold vault.

There, 6,000 gold bars are stacked on industrial-strength shelves in a purpose-built building in Frankfurt. An additional 76,000 bars of bullion are stored in four safe boxes, in sealed containers.

But even this personal inspection wasn't enough to reassure the visiting member of parliament – on the contrary: "The Bundesbank monitors its domestic gold in an exemplary fashion," Gauweiler says, "and this makes it all the more incomprehensible that the bank doesn't look after its reserves abroad."

For quite some time now, Gauweiler has been pestering the government and the Bundesbank with questions concerning where and how the country's reserves are stored, and how often they are checked. He has submitted requests and commissioned reports on the topic.

Last week, Gauweiler celebrated his greatest triumph to date in his gold campaign, which has been a source of some amusement for many fellow German politicians: A secret report by the Federal Audit Office had been made public – and it contained stern criticism of the German central bank in Frankfurt. The Bonn-based auditors urged a better inventory system, including quality checks.

This demand, which even the bank's inspectors saw as nothing more than routine, alarmed the Berlin political establishment. Indeed, the partially blacked-out report read like the prologue to an espionage thriller in which the stunned central bankers could end up standing in front of empty vaults in the US.

'Grotesque Debate'

For decades, German central bankers have contented themselves with written affirmations from their American colleagues that the gold still remains where it is said to be stored. According to the report, the bar list from New York stems from "1979/1980." The report also noted that the Federal Reserve Bank of New York refuses to allow the gold's owners to view their own reserves.

Not surprisingly, this prompted strong reactions in Berlin: The relevant Bundesbank board member Carl-Ludwig Thiele was summoned to Berlin to provide an explanation to the parliamentary budget committee. Heinz-Peter Haustein of the business-friendly Free Democratic Party (FDP) was even quoted by Germany's mass-circulation Bild newspaper as saying that "all the gold has to be shipped back."

The Bundesbank's otherwise reserved Thiele said that he found at least "part of the debate" to be "rather grotesque." His financial institution currently has more pressing problems. Bundesbank head Weidmann, for example, is desperately fighting the European Central Bank (ECB) decision to buy unlimited quantities of sovereign bonds from crisis-ridden countries as a way of lowering their borrowing costs. In addition, the Bundesbank has already pumped nearly €700 billion ($906 billion) into primarily southern European countries as part of the euro-zone central bank transfers known as Target II.

Germany's gold reserves are currently worth some €144 billion and are not stored "with dubious business partners," as Thiele stresses, but rather with "highly respected central bankers."

Special Connection

There is in fact nothing unusual about how Germany deals with the precious metal. Many other central banks store a portion of their gold reserves abroad. The Netherlands, for example, places its trust in its colleagues in Ottawa, New York and London.

But the relationship Germans have with their gold is a special one. Germany hoards nearly 3,600 metric tons of the precious metal – only the US has more. Much of this gold treasure was amassed under the Bretton Woods international monetary system, in which the dollar served as the world's key currency and was directly convertible to fixed quantities of gold.

Before the gold standard was terminated in 1971, the current account surpluses generated by Germany's "economic miracle" were partially balanced out in gold. Thousands of US bars of gold alone were transferred to German ownership.

But since the euro is not backed by gold, such vast reserves are actually no longer necessary. Nevertheless, the Germans continue to resolutely defend them – and every attempt to use this treasure has been met with dismay.

There has been no lack of proposals: Former German President Roman Herzog wanted to sell the gold to form the basis for a capital-based nursing care insurance scheme. In 2002, FDP parliamentary floor leader Rainer Brüderle proposed a fund for natural disasters. Former Bundesbank head Ernst Welteke added to the debate by suggesting the foundation of a national educational fund. But none of these ideas were ever taken seriously.

Most recently, German Chancellor Angela Merkel of the conservative Christian Democratic Union (CDU) shot down an idea by the euro partners to use the reserves as collateral for euro bonds.

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November 7, 2012

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