Germany goes on gold raid to qualify for EMU

In its desperation to qualify for European Monetary Union, the German government is raiding the gold hoard of the Bundesbank.

Like a Wagnerian god, Theo Waigel, the finance minister, descended on Frankfurt yesterday, ordering the gnomes of the central bank to revalue their gold and foreign exchange, and to redeem some of the state's debts with the proceeds. No bullion will be sold, the government insists, but the price of gold fell on the first rumours.

Throughout its short history, the cautious Bundesbank has grossly underestimated the value of its gold, some of which is still stored in the central bank vaults of Germany's allies. In accordance with standard German practice, the bank records its assets at their all-time lowest price or at the purchase price.

A revaluation could bring a huge windfall profit to the bank. In gold alone, the Bundesbank holds 95 million ounces, originally acquired at an average price of DM144 an ounce, adding up to a total value of DM13.7bn (pounds 5bn). At the current market value of about DM600 an ounce, it would be worth about DM57bn.

This is the loot on which Mr Waigel has set his eyes in order to plug a hole in his budget. Germany, once the most disciplinarian among Europe's profligate governments, is on course for busting the Maastricht criteria in 1997, the qualifying year.

That much has been known for some time, but only yesterday, when an independent panel of government advisers issued their damning verdict, did Mr Waigel accept it. According to the panel, tax revenues this year would be DM18bn lower than forecast by Mr Waigel's ministry, equivalent to 0.5 per cent of GDP. Just over half the shortfall would be a hole in the central budget; the rest would be down to regional and local authorities.

With the official government forecast reckoning on a budget deficit of 2.9 per cent, this predicted shortfall takes government expenditure over the 3 per cent deficit ceiling allowed by the Maastricht Treaty. The loss in tax revenue is attributed mainly to this year's huge rise in unemployment and slower- than-predicted growth rate.

How the government will use the proceeds of its gold raid, which violates, if not the letter, then certainly the spirit of the Maastricht Treaty, is left unclear. Mr Waigel said that no cash would actually flow into state coffers. The Bundesbank surplus will be used to redeem debt accumulated in rebuilding East Germany. The government's gain is that it will no longer bear the burden of interest on these debts, thus reducing both the total figure for public debt and the annual total for public expenditure.

It is, according to one expert, "a fiddle". Under European Union rules, inspired largely by Germany, member states are not allowed to reduce their deficit by selling gold reserves. The rules are more ambiguous on the question of whether treasuries are allowed to tinker with the valuation of their assets.

Either way, Mr Waigel's manoeuvre is the sort of "one-off measure" of dubious legality which he has accused the Italians of perpetrating, and only slightly less "creative" than the French government's raid on France Telecom pensions.

Mr Waigel has also cast covetous eyes on the semi-privatised German telephone giant's hidden wealth.

After a successful flotation last year, Bonn still owns 74 per cent of Deutsche Telekom shares, which have risen by more than 40 per cent in value since their issue.