ECB President Christine Lagarde has warned Italy against a proposal to declare the country’s gold as property of the people.
The move comes in response to a budget amendment, proposed by the ruling Brothers of Italy party, which seeks to change the way reserves are managed.
Questioned by Italian MEP Pasquale Tridico of the Five Star Movement, Lagarde clarified that, according to European law, the holding and management of reserves is the exclusive responsibility of the national central bank of each member state.
“The Bank of Italy is no different from any other national central bank,” Lagarde said. “This is not a trivial issue, because Italy is the third largest holder of gold among the central banks.”
Such a statement reiterates the ECB’s position last set out in 2019, when the League party in Italy raised the same issue.
“We go full circle since 2019, it hasn’t changed at all,” ECB President Christine Lagarde said on Wednesday.
What does European law say?
Statements on the ownership of gold reserves are not simple regulatory changes, but they touch on the fundamental principles governing central bank independence in the eurozone.
The ECB said in a legal opinion on Tuesday: “The Italian authorities are invited to reconsider the draft provision, also with a view to preserving the independent performance of the basic ESCB-related tasks of the Banca d’Italia under the Treaty.”
According to European treaties, the holding and management of reserves are the responsibility of the national central banks. No mention is made of formal ownership, but it is very clear who is to exercise operational and accounting control.
Central bank autonomy is the guarantee that reserves, especially gold reserves, remain safe from political pressure or attempts to use them for budgetary purposes. A transfer of ownership or an ambiguous rewording of the rule could open the way for the political use of gold, setting a dangerous precedent across the eurozone.
Stability in the eurozone at risk
The ECB noted that it does not see the “concrete purpose” of Italy’s proposal, one that risks calling into question the balance that has ensured the credibility of the euro and the financial stability of individual member states over the years.
Robust national gold reserves can boost investor confidence in a country, meaning a sudden change in management could undermine the perceived stability of Italy and the wider eurozone ecosystem.
With more than 2,450 tonnes of gold, Italy outflanks many other countries with its bullion reserves, meaning it has every interest in preserving transparent management.
In a sensitive market like Italy, the misuse of gold could undermine investor confidence and in turn increase the cost of national debt.
The ECB also wants to avoid setting a precedent. If one country unilaterally changes the framework for its reserves, others could feel entitled to do the same, with potentially dangerous impacts on eurozone stability.
The original amendment from the Brothers of Italy party stated: “The gold reserves, managed and held by the Bank of Italy, belong to the State, on behalf of the Italian people”.
In recent days, the proposal has nonetheless been reworded to soften the message.
According to the new text, the provision “shall be interpreted to mean that the gold reserves managed and held by the Bank of Italy belong to the Italian people”.