Interestingly, Greece’s efforts to curtail spending may not do the trick. It turns out that one of the culprits of the current mess is –oddly- discipline, frugality, and tight wallets- those of…the Germans. The Washington Post found that: “Greek extravagance touched off the biggest crisis in the 11-year history of the euro.

But the world's most ambitious monetary union faces a less obvious problem that might be even harder to lick -- German frugality. Southern European profligacy is now the target of open distain in Germany, with many here ruing the day in 1999 that this nation of 82 million kissed goodbye to the once-mighty deutsche mark.

Germany is in a tight fix -- loath to reward feckless Greece with a concrete promise of aid but fearful of the consequences to its own economy if it does not. "The Germans were catering a big party that was going on in the euro area, selling the food and offering the credit to the party guests," said Thomas Mayer, chief economist for Deutsche Bank.

"But the guests got drunk and ate too much, and now Germany is stuck with the bill. What this tells us is that the euro model must be adjusted. Yes, the Greeks are going to have to make reforms, but the Germans are going to have to change, too." Joining the global culture of debt, many here say, is simply not an answer. “I think we also have to say that there are some countries [where consumers] have spent too much." said Joe Kaeser, chief financial officer for Siemens.”

Spend? Save? Hold gold? Opt for paper? – Some, or all, of these questions are currently nagging many a central banker –and not only in the countries directly or indirectly affected by the current crisis. There are no sure-fire conclusions on offer either, just yet. In fact, the Financial Times finds that –as counter-intuitively as it may seem at this juncture, and despite the possible implications of the present mess: “Gold risks being replaced in the long term by a basket of currencies in central bank reserves, according to a portfolio manager on the Smith & Williamson Global Gold and Resources fund. Bob Lyon said special drawing rights could be used to diversify currency exposure in central bank reserves instead of resorting to gold as a safe haven.

Emerging markets in particular mooted using special drawing rights more widely after the financial crisis and quantitative easing caused fears over the dollar. Using special drawing rights would remove one of the two major drivers from the gold markets, leaving jewellery as the chief catalyst for demand.

In the near term, Mr. Lyon said the chief risk to the gold price was a rise in real-term interest rates. If interest rates were to rise in the US, this would make the dollar more attractive, lessening demand for gold as a replacement reserve currency. For this reason, Mr. Lyon said, troubles in the eurozone had temporarily lessened demand for gold, as the dollar had appreciated against the euro.”

As for your basket of reserves, we say: keep that core ten percent portion in gold. It can only be beneficial. Just hope it does not become critical. Your other assets will thank you. You will thank you.

Jon Nadler is Senior Analyst, Kitco Metals Inc.North America

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