* German central bank angered at talk of using reserves
* Euro zone seeks ways to boost bailout funds
* U.S. official speaks favorably of SDR leveraging role
* Merkel aide: no threat to Bundesbank independence
By Stephen Brown
BERLIN, Nov 7 Chancellor Angela Merkel has
ruled out using gold and currency reserves or IMF special
drawing rights to boost the euro zone bailout fund for fear of
violating the independence of Germany's central bank, which
opposes such use of reserves.
German sources said the proposals had caused tension
between Bundesbank President Jens Weidmann and German Finance
Minister Wolfgang Schaeuble, and between Weidmann and the
European Central Bank, during last week's G20 summit in
The issue came up because Europe is worried that, with its
partners in the Group of 20 wary of investing in European
Financial Stability Facility (EFSF) instruments, it needs other
ways to boost the 440 billion-euro fund without compromising
the top-grade credit ratings of member states like France.
When word got out that the ECB had been asked to look into
how euro zone countries' reserves or SDRs -- special drawing
rights at the International Monetary Fund -- could be pooled to
leverage the EFSF, the Bundesbank reacted angrily, German
This was depicted in the German media as an attempt to use
"German gold" held by the Bundesbank, whose independence is
sacrosanct, to further fund bailouts which are already a source
of growing impatience among the German public and politicians.
"German gold reserves must remain untouchable," said
Economy Minister Philipp Roesler, head of the Free Democratic
Party (FDP), the junior partner in Merkel's coalition, which is
already under pressure from eurosceptics in the party and could
not afford any more euro zone demands on Germany's coffers.
"We know this plan and we reject it," said a spokesman for
the Bundesbank at the weekend.
In Washington, a U.S. State Department official spoke
favorably about the idea of using SDRs to leverage up the EFSF
but acknowledged that it was opposed in some European circles.
"The SDR option is certainly a possibility to augment the
resources of the EFSF," Robert Hormats, under secretary of
state for economic affairs, said at a Reuters Washington
"They don't have a lot of options so this may turn out to
be one that's useful," he said during an interview at Reuters'
The Obama administration has made the point that the euro
zone's central bank needs to play a strong role in dealing with
the crisis, akin to that taken on by the Federal Reserve during
the 2007-2009 financial crisis when it stepped up to become a
credit backstop for the economy.
There is evident reluctance, however, in Europe for it to
Merkel's spokesman, Steffen Seibert, denied there was any
consideration being given to plans that would impinge on the
independence of the Bundesbank, which he called a "central
element of German economic and financial history."
"In Cannes some participants asked if IMF special drawing
rights could be used. These special drawing rights are
controlled by the Bundesbank, just like Germany's gold and
foreign currency reserves," Seibert told a news conference.
"The chancellor told our international partners in Cannes
... that in the German view, according to our law, the
Bundesbank controls them, its independence is well known, and
the chancellor made it quite clear that she could not back any
such agreement," said Seibert.
German newspapers reported at the weekend that such plans
intended to use German reserves, or its SDRs, to boost the
country's contribution to the EFSF crisis fund by more than 15
billion euros ($20 billion).
This would appear to contradict the often-repeated promise
of Merkel's government that Germany's maximum contribution to
the fund was 211 billion euros and would not be increased under
Germany and France have been at odds about how to leverage
the EFSF. The French favor letting it operate as a bank that
could borrow from the ECB but Merkel and Jean-Claude Trichet,
who has just stepped down as ECB president, opposed this,
partly on the grounds that it should not be used to finance
It was unclear whether Germany's opposition meant the
reserves issue would not be on the agenda of a Eurogroup
meeting of finance ministers of the 17-nation euro zone in
Brussels on Monday.
Euro zone leaders want to boost the EFSF's firepower to
about 1 trillion euros to convince markets that they can cope
with potential contagion of the debt crisis to Italy and Spain.
The main proposals are a debt-insurance scheme offering
investors in sovereign bonds a payout if that country were to
default, which leaders hope would encourage reluctant investors
to buy euro zone government bonds, and setting up a special
investment vehicle giving foreign investors a less risky way to
buy euro zone debt.
However, Merkel said in Cannes there had been limited
interest from among G20 nations.
Austria's finance ministry said Monday it was prepared to
discuss using SDRs to boost the EFSF, but that "many questions
"SDRs are not reserves in the usual sense. We would also
rule out the use of reserves," spokesman Harald Waiglein said.
The Austrian central bank said its foreign currency and
gold reserves were "untouchable" but that responsibility for
SDRs was shared with the finance ministry and a proposal would
merit joint scrutiny by both institutions.