One Sign Germany’s Preparing for Euro’s Collapse?

“It’s tradition. Long-term tradition.”

July 2011. Rep. Ron Paul (R-TX), since retired, had just asked Fed chair Ben Bernanke why central banks own gold.

And old Ben said it all came down to tradition. Tradition. Like that annual Easter egg hunt… Thanksgiving turkey… or Friday night pizza. Nothing more.

We can only conclude then that the German central bank is a highly traditional lot…

The German gold hoard weighs in heavy at 3,378 tonnes — second only to the United States.

For decades, much of that gold has been kept abroad for safekeeping. Then West Germany stored up to 98% of its gold abroad during the Cold War. It was a rough neighborhood with the Soviets a couple doors down.

These days the Soviets are gone but the Germans want their gold zurück in Deutschland…

Since 2013 the Bundesbank has been carrying out plans to repatriate half its foreign gold, mostly from storage in New York and Paris. The transfer was supposed to be complete by 2020.

But due to the efficiency so characteristic of Germans, the Bundesbank just announced recently that it intends to fully repatriate the gold by the end of 2017.

Three years ahead of schedule.

Why the rush?

German efficiency only explains so much. Respect for tradition goes so far and no more. Maybe the Germans want their gold back for more… urgent reasons?

The Bundesbank says the reason is to “build trust and confidence domestically.”

Just so. But trust and confidence in what? Maybe the Germans know something…

Whispers circulate — faintly for now — that Germany might be calling in its gold to back a new deutsche mark. The eurozone’s built on sand and many see the sand giving way. Many fear the euro may collapse.

Should the euro collapse, a gold-backed deutsche mark might be the only viable alternative, a pillar of stability on golden foundations.

Brexit shook the European Union, but Britain was never on the euro. France, Italy, Spain and Greece are. It could just take one of them to bring down the entire regime. French presidential candidate Marine Le Pen and Italy’s Five Star Movement yelp of dropping the euro. Spain’s raising a squawk. Greece is popping off again.

Is that the reason Germany’s calling in its gold three years ahead of schedule? To prepare for the euro’s demise? Beats our pair of jacks. We have no agents in the Bundesbank at this time.

But there’s a good reason Germans incline to gold…

Cultural memories of the post-World War I hyperinflation hang in the German air, penetrate the German soil. In 1923 alone, prices rocketed a trillion-fold. A wheelbarrow of money could scarcely fetch a loaf of bread. Millions lost their life savings.

From the ruins of hyperinflation rose an Austrian with a funny moustache.

If gold’s a tradition like Mr. Bernanke asserts, it’s a tradition the Germans might be wise to keep.


Brian Maher
Managing editor, The Daily Reckoning

The Daily Reckoning