THE German government yesterday took the first steps to using gold reserves to support deteriorating public finances and allow the country to participate in European economic and monetary union from the planned starting date in 1999.
The move came as an experts' report was published predicting a 118 billion deutschmark (£45.3 billion) shortfall in budgeted revenues between now and 2001.
Mr Theo Waigel, the finance minister, made an unannounced visit to the Bundesbank in Frankfurt to outline government plans for a revaluation of the reserves and a harnessing of the resulting profits to reduce Germany's debt.
Although the minister said the planned move was in line with international practice, it may be seen in other European Union countries as a creative accounting device to .achieve the criteria to join the single currency.
Within Germany, it is bound to be seen as a remarkable policy U turn and securing the necessary change in the Bundesbank law would be no easy task.
The gold price fell after the announcement, and was fixed in London yesterday afternoon at $346.40 (£226) per ounce, down from £349.10 a day earlier. After his return to Bonn, the minister firmly denied the government wanted to sell any of the Bundesbank's 95 million ounces of gold. "There is no plan to sell one ounce of gold or a single dollar of the monetary reserves," he said.
Instead, the government proposed that the reserves should be valued more closely to market levels and the resulting gain in the Bundesbank accounts be paid into an existing government fund to reduce debt arising from German unification. The gold reserves are currently valued at $13.69 billion, more than 40 billion deutschmarks below their market value.
Without giving details, Mr Waigel said such a transfer of Bundesbank profits to the redemption fund for historic burdens" would count towards reducing Germany's public deficit and debt. It was a legitimate use of savings built up over 50 years, he said.
Mr Waigel said the government was also considering a further tightening of controls on public spending, more sales of government properties and would press ahead with plans to sell some of its Deutsche Telekom shares this year to plug gaps in the budget.
In separate talks last night, the parties of Chancellor Mr Helmut Kohl's coalition were discussing emergency measures in the hope of avoiding new increases in indirect taxes, after the small Free Democrat party indicated it would not accept such a step.
Yesterday got off to a frantic start in Bonn after a newspaper report that the government would seek to harness the nation's gold reserves to plug its deficit. Political activity reached fever pitch after the finance ministry's group of experts released their estimates of tax shortfalls up to 2001.
They calculated that this year's overall tax income of the federal, state and local authorities would be 813.1 billion deutschmarks, or 18 billion deutschmarks less than forecast last November. This result was not as bad as expected, with the 9.1 billion deutschmark shortfall attributed to the federal government only slightly higher than the eight billion deutschmarks already accounted for in January.
