Can Gold Sales Stop Germany's Brain Drain?

He may have the support of German Chancellor Gerhard Schröder, but Ernst Welteke, head of Germany's central bank, the Bundesbank, is having a hard time selling his idea to parliament.

In January, Welteke proposed setting up a research foundation to distribute profits made from the sale of 20 percent of the Bundesbank's gold reserves. He reasoned this would go a long way in appeasing top German researchers, who complain that a lack of state funding is forcing them to look for jobs abroad.

But Welteke's idea met with disapproval from the parliamentary budget committee on Wednesday. "I didn't hear from anyone who was in favor of Welteke's suggestion," said Deputy Finance Minister Karl Diller.

Back to the drawing board

Following the parliamentary committee session, Welteke admitted that much more work needed to be done to convince politicians of his proposal's merit. But that will be difficult. His plan would necessitate changing German law, which stipulates that any profits from gold sales be used to reduce the national deficit.

That is a top priority now, as Germany is set to breach EU budget deficit rules for a third year in a row in 2004.

Welteke would also have to amend his proposal to fall in line with a new gold deal agreed by Europe's central banks on Monday. The deal commits the European Central Bank, and the banks of every EU nation except the UK and Denmark, to cap gold sales at 500 metric tons a year for the next five years. The overall limit for the accord is 2,500 tons, up from 2,000 tons under the previous 1999 agreement.

"Gold will remain an important element of global monetary reserves," said the joint statement of the 14 central banks and the ECB.

Gold operates as a safe haven for investors in troubled times. While the trend in recent years has seen central banks shedding gold in favor of hard currencies, gold is currently in demand because of the weak U.S. dollar.

National gold reserves are a holdover from the Bretton Woods accord of 1944, in which the value of currencies was pegged to gold. With a total value of around €46 billion, Germany is the world's second largest holder of gold reserves behind the U.S.

Before the new deal was struck, the Bundesbank had requested an option to sell 600 tons. That will now have to be scaled down in line with the new limits.

Finding resonance in France

The German proposal to use gold profits to stem the flow of its best researchers abroad has found favor in neighboring France, which faces growing protest by top scientists. On Tuesday, 2,000 scientists stopped their administrative work at laboratories to demand more state support for research.

Following the protest action, France's Research Minister Claudie Haigneré suggested raising cash either through the sale of gold or more privatizations. The Bank of France has not sold gold in recent years and had no immediate comment on Haigneré's suggestion.