The global economy is still in an economic quagmire, and a key reason for this were the political decisions of those in power in key economies over the past 15 years. As we all know, New Labour was an economic mess. Quite how Tony Blair and Gordon Brown were allowed to sell the idea that it was possible to have increased public services without the tax; a larger public sector and a larger private sector; and to spend far more than the country was earning for such a long period of time is a testament to the brokenness of the political opposition in Britain at the time, and the triumph of the New Labour Public Relations machine.
One of the most appalling decisions which Gordon Brown made was to sell of half of Britain’s gold reserves and then watch as the price of gold took off, making the country a massive collective loss. The price British gold was sold at was less than a third of the present price. However, one of the better decisions was witholding Tony Blair from selling the nation’s future to Brussels by joining the Euro.
The Euro is naturally in trouble now. Surely the Euro-area will have to split, and a two-speed Europe emerge. The collapse of the Euro is virtually unthinkable, because it is not an economic project, but a political one, and we all know how committed Eurocrats are to the dream of a united Europe. It is worth taking a look at the gold reserves of Europe at this moment, as gold prices remain sky-high and different economies, mainly the Southern ones, struggle with debt.
Gold reserves in Europe
Europe’s gold reserves tell an interesting story. We can definitely see some groups that exist. Eastern Europe stands out as one – these states acquired gold reserves and have largely kept them. They do not have much, but what they have is stable. These countries include Bulgaria, the Czech Republic, Hungary, Latvia, Lithuania, Poland, Romania, and Slovakia.
In this group we can also place bigger states with larger reserves, such as Finland, Germany, Denmark, France, Sweden and, more surprisingly, Italy and Greece. Sweden has been recording a gradual decrease in its supplies – 170 tonnes in 2005 and now only 125 now. Italy has registered a slight increase over the last 20 years in terms of its weight of gold in tonnes. Greece is the anomaly here – whilst its economy is ladened with debts it cannot pay, it has registered a slight increase in gold reserves since 2005. It now has around 111 tonnes. This places Greece in an interesting position. A gold sell off would quickly raise a lot of money, especially now, to deal with the debts. However, in the long-term, it will undermine Greece’s future. And who would take this Greek gold? Surely the central European power-house economies, like Germany, which would strengthen the disparities between Greece and Germany, adding more pressure on Athens to exit the Euro. Athens has done well to hold onto its gold, but the financial realities of the world mean that something has to break, or the Greek’s will be indebted to the rest of Europe for a very long time…
Finally we can see those states which have registered large and continuous decreases. It is no surprise to see Ireland on this list, along with leading federalist states such as Belgium and Luxembourg. Joining them is the Netherlands, Spain, Austria and Portugal, though Portugal’s decrease is more gradual – 462 tonnes in 2005, 382 now.
The effect of gold
This is important, for we have always used gold, and money, as a store place of value, and as a medium of exchanging that value. However, as Lord William Rees-Mogg has regularly noted, gold has proved a far better functionary for the usage of storing value than paper currencies. In terms of its purchasing power in relation to physical assets, little has changed with 300 years ago. Yet we know that with paper money, what one pound could buy 20 years ago compared with today has dramatically changed. Most paper currencies have in fact lost 98% of their purchasing power in just the last 100 years.
The global financial system, for the large part based on Fractional Reserve Banking, breeds inflation and thus the decline in the long-term value of paper money. As most economists have noted, the whole ‘quantative easing’ experiment has in fact been a competitive devaluation of the currency by printing more money, reducing the pounds value, making exports cheaper, but making everyone in the UK poorer on the world stage.
And so what does this mean? As most people know, especially the Conservatives in government, the excessive spending of the past needs to be reduced, because the massive debts Labour left the UK are no longer underpinned with a massive gold supply. The Pound is certainly no longer ‘as good as gold’. This is Labour’s economic legacy.
The Euro, however, is in a different situation. Italy, France, and Germany – core EU powerhouse states, have large and stable gold reserves. Looking purely at these countries, one could easily conclude that the Euro is potentially very strong. Statistically, Greece is in this category too. But Greece has ladenened itself with paper-money debt. This leaves two choices: creditors lend the Greeks money and the debt is restructured, or Greece needs to abandon the Euro, sell off gold, and massively devalue its economy. The first option is politically very difficult – why should sensible Germans pay for lavish Greeks, whilst the second option is economically far more sensible. With Portugal, Spain and Ireland also having economic troubles, and also having reduced their gold supplies, they too find their economies undermined. Of course, the Euro is a political project, and reluctance to reduce the Eurozone’s size is immense, but the economic reality will kick in soon. The Eurozone core is strong – strong economies, strong gold reserves; but the periphery needs to be cut-off. The two-speed Europe is on its way.
