ECB Urges Italy to Rethink Gold Reserves Stance

Overview of the Issue

The European Central Bank (ECB) is urging Italy to reconsider a move that would declare its gold reserves as property of the people. Critics fear this could open the door for the Italian government to sell off these reserves.

The ECB's Message

In a legal opinion issued on Tuesday, the ECB's governing council asked Prime Minister Meloni's government to re-examine the proposal, after Rome requested that Frankfurt officials study the matter. ECB policymakers expressed concerns about the independence of the Italian central bank in performing the essential European System of Central Banks (ESCB) tasks, as per the treaty.

Significance of Italy's Gold Reserves

Italy holds approximately 2,452 tonnes of gold, making it the third-largest reserve holder after the United States and Germany. With recent gold price surges, some members of Meloni's center-right party have proposed an amendment to the country's upcoming budget, affirming that these reserves are managed and held by the central bank, but "belong to the Italian people."

ECB's Concerns

The ECB's governing council stated that it was unclear what the specific purpose of the draft provision was.

Potential Economic Implications

The amended proposal has baffled economists and central bankers, as the gold is already considered the property of the Italian state, and therefore belongs to the Italian people. Its current market value exceeds €280 billion ($327 billion). The concern lies in the fact that these gold reserves are held by the central bank, which, as per Italy's requirements as a Eurozone member, is a public institution independent of the government. Therefore, ministers cannot freely dispose of part of the reserves, as the UK did under Tony Blair's government (starting in 1999) when it sold off approximately half of its gold.

Expert Opinions

Former Bank of Italy Governor Salvatore Rossi stated in an interview that "The problem with this amendment is that it violates European treaties. Approving it as Italian law means starting a major battle with European institutions, and I politically doubt whether it is a good idea."

Political Context

Meloni's Brothers of Italy party has repeatedly raised the issue of political control over the country's reserves, and the far-right League party had already proposed in 2019 handing control of the gold back to the state. At the time, the ECB responded that this violated EU treaties.

Broader Economic Challenges

The discussion about gold is linked to deeper issues such as Italy's growth trajectory and future fiscal plans. According to the Italian government's own estimates, the economy is expected to grow by only 0.5% this year, while debt remains well above 130% of economic output, making spending difficult, both to help citizens and to promote growth. Meloni has managed to include tax cuts for the middle class in her latest budget, which is scheduled to be approved before the end of the year. She and Finance Minister Giancarlo Giorgetti have been praised for their fiscal efforts, which have reduced the deficit to the EU-mandated maximum of 3%. Italy has received four upgrades this year alone from rating agencies used by the ECB to assess collateral. Investors have rewarded this, reducing the spread between the yield on Italian 10-year bonds and equivalent German bonds to well below 80 basis points. But the road ahead looks more complicated. The EU recovery fund program, which helped sustain economic growth through investment in infrastructure and other projects, is gradually fading. Meanwhile, global trade tensions remain. This is forcing politicians to look for other options to help shore up their finances, from common EU debt to tapping into the country's gold reserves. About half of Italy's gold is stored in Rome in the vault of the Bank of Italy. Most of the rest is located in the United States, and a smaller share is located in Britain and Switzerland. Rossi noted that: "Gold remains a guarantee, a safe form of promoting stability, and any country would think twice before selling a piece of gold, because it sends a bad signal, as if to say to the world that I am selling my last possessions, I have run out of salvation, this is not the signal you want to send to the market."