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How to Profit from Europe's Secret Economic "Plan B"

Economics / Euro-Zone Dec 09, 2014 - 01:21 PM GMT

By: Money_Morning

Economics

Peter Krauth writes: As the European Union debates yet a third bailout for Greece, revelations about secret plans by some Eurozone members tell an even more intriguing story.

During the depths of the European sovereign crisis, when Greece was inches from exiting the zone, others chose to not sit idly by.

Instead, two member nations were surreptitiously preparing for a possible Eurozone breakup.


Even more fascinating is what came next, as it appears preparations are still in active mode.

Connecting just some of these dots will not only tell a fascinating tale of fiscal intrigue, it will also give you a leg up on most other investors who'll wish they knew as much as you…

The Dutch "Plan B" a Surprise Player

While the world watched Europe at the peak of its crisis, the Dutch and German governments began preparing emergency plans; measures that would allow for a transition back to their pre-euro national currencies, the guilder and Deutsche mark, should it become necessary.

Under the guise of the aptly named "Plan Florijn"(another name for the old Dutch guilder), the Netherlands' finance ministry and government organized for a worst-case scenario.

According to online European news site EUobserver.com, current Dutch Finance Minister Jeroen Dijsselbloem confirmed the existence of the plan in a weekly interview with news outlet RTL Z saying, "Government leaders, including the Dutch government, have always said: we want to keep that Eurozone together. But [the Dutch government] also looked at: what if that fails? And it prepared for that."

Dijsselbloem also confirmed that discussions at the time were secretive to avoid causing panic in financial markets.

In the Dutch television documentary "Argos Medialogica," former Dutch Finance Minister Jan Kees de Jager said, "The fact that in Europe multiple scenarios were discussed was something some countries found rather scary. They did not do that at all, strikingly enough."

And as it turns out, the Netherlands wasn't alone.

De Jager told "Argos Medialogica," "We were one of the few countries, together with Germany. We even had a team together that discussed scenarios, Germany-Netherlands."

When EUobserver asked the German finance ministry about the matter, they didn't refute that such plans had been "in the works."

Although this is intriguing enough, the real story is in what happened next…

Where's the Gold?

With the Eurozone barely clawing its way back from its sovereign debt crisis, Germany shocked the gold market in January 2013, saying that it would repatriate gold held at the New York Fed and the Banque de France.

Deutsche Bundesbank officials said the action was "preemptive" in case a "currency crisis" was to strike the monetary union.

These days, despite headlines suggesting Germany's gold repatriation is behind schedule and may not even happen entirely, the Bundesbank confirms that it is moving forward on its repatriation plans as announced.

With a total of 3,384 tonnes, the second-largest gold stash in the world, Germany will be bringing home some 600 tonnes from the United States and France by 2020, with plans to eventually hold 50% of its gold at home.

For its part, De Nederlandsche Bank (DNB) recently had 122 tonnes of its gold shipped to Amsterdam from New York.

According to DNB, 31% of its gold reserves are now held in Amsterdam, and some are held outside of the country with about 31% with the Federal Reserve, 20% with the Bank of Canada and 18% with the Bank of England.

More interesting however, is that this repatriation was done secretly, only being made public after the fact.

According to the websites of the Dutch and German central banks, both their official gold reserves are held fully allocated, meaning none of their gold is leased out or swapped.

As for the Eurozone as a whole, unallocated gold is at very low levels and it's declining, indicating a clear preference for allocated gold.

Could this be another sign that Europe is preparing for an even worse crisis ahead?  Might Europe split up or reconfigure? And are they expecting a fiat currency crisis?

With Germany being the industrial and financial backbone of Europe, it's difficult to imagine the union holding up in any substantive way without it.

It would seem that essentially any other member nation could leave the union, and it could still cling together.

If Germany leaves, Europe's likely to break apart.

It's only a matter of whether that happens slowly or quickly.

That's why Germany's push to repatriate its gold is so fascinating.

If the European Union was to disintegrate, and the Netherlands joined Germany, the Netherlands would of course be the clear winner, given the relative sizes of their economies.  But at this point, that's just conjecture.

More salient is how these and other Eurozone nations are preparing their own Plan B's ahead of any potential currency crises.

Here's What Our "Plan B" Looks Like

Switzerland has a long history with gold. In fact, from the 1920s until 1997, the Swiss franc was even backed by 40% gold reserves – until legal changes lowered that to 25%.

In 2000 further changes to the Swiss Federal Constitution completely severed the franc's link with gold.  The Federal Assembly even pushed through new currency laws demonetizing gold.

And that set off a series of sales, lowering Switzerland's gold reserves by 1,550 tonnes over the next 8 years.

A group intent on repairing these shortcomings organized and managed to obtain a referendum asking citizens if they agreed that the central bank should:

  • be made to hold a minimum 20% of its assets in gold;
  • be prohibited from selling it off; and
  • be made to store it all at home.

Despite a strong initial outlook, the initiative failed as the finance minister, political leaders, and even the president of the Swiss National Bank (who rarely appears in public) all came out, regularly maligning the proposal in an unprecedented multimedia blitz.

But the debate is now in the minds of the Swiss and numerous others who've been made aware of these crucial issues.

Just recently, leading French politician Marine Le Pen wrote an open letter to the French central bank, asking it to repatriate and audit France's gold.  Most of her demands echoed those of the Swiss initiative.

In her letter she took it a step further:

"The monetary institution that you lead has historically served as the reserve central bank for France's monetary and gold reserves. In our strategic and sovereign vision, these do not belong to the state, nor the Bank of France, but to the French people, which serve as the ultimate guarantee of public debt and our money," she wrote.

Wow. How's that for a breath of fresh air, rather than hot air, from a politician?

These are clear indications that despite the headwinds from central planners, there's increased momentum for the role of gold in nations' reserves and their currencies.

Don't forget, the Netherlands guilder, from the 17th century until 2002, gets its name from the word "golden" because the coins were originally made from gold.

Right now, all the signs are pointing to the future of money regaining some link with gold.

If you haven't done so already, there's still time to prepare our backup plan like those gold-repatriating central banks: Get gold, and keep it.

It's your crisis insurance.

Source : hhttp://moneymorning.com/2014/12/09/how-well-profit-from-europes-secret-plan-b/

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