As the squabbling over Italy's populist government's plans to blow out its budget deficit to finance an agenda of tax cuts and social spending (including a 'citizen's income' that's essentially UBI-lite) crowded the headlines, the issue of who owns the 2,451 metric tons of gold reserves held by the Bank of Italy has been quietly ignored - at least, outside of Italy.

But that might be about to change.

On Tuesday, the ECB asked the League, the dominant party in Italy's ruling coalition, to remove a reference to the Bank of Italy holding gold as an "exclusive title of deposit" according to Bloomberg.

Translation? If Italy is not allowed to have title to Italian gold, then Italy's gold now belongs to the ECB.

ECB ASKS LEAGUE TO REMOVE REFERENCE TO BANK OF ITALY HOLDING GOLD AS "EXCLUSIVE TITLE OF DEPOSIT"



Translation: Italy's gold is now the ECB's gold — zerohedge (@zerohedge) June 25, 2019

Today's escalation over Italy's gold "title" comes two months after the WSJ reported that Italy’s ruling populists pushed ahead with efforts to seize control of the central bank and its gold reserves. Complaining that hundreds of thousands of small individual investors lost billions of dollars after several Italian banks failed in recent years, the current Italian government depicted the central bank as a symbol of a technocratic elite aloof from the needs of ordinary Italians.

“We need a change of course at the Bank of Italy if we think about what happened in the last years,” said Deputy Prime Minister Luigi Di Maio, leader of the 5 Star Movement.

Shortly thereafter, 5 Star lawmakers asked parliament to pass two draft laws.

One law would instruct the central bank’s owners, most of them private banks , to sell their shares to the Italian Treasury at prices from the 1930s.The other law would declare the Italian people to be the owners of the Bank of Italy’s reserve of 2451.8 metric tons of gold, worth around $102 billion at current prices.

"The gold belongs to the Italians, not to the bankers,” said Giorgia Meloni, leader of the Brothers of Italy, a far-right opposition party that supports both bills. “We are ready to battle everywhere in Italy and to bring Italians to the streets if necessary."

So far there has been no fighting but if indeed Draghi just told Italy that its gold now belongs to the Frankfurt-based central bank we expect that to change (We discussed the proposed laws in more detail here).

Meanwhile, yesterday Italian BTP yields tumbled to their lowest level in a year as investors breathed a sigh of relief following reports that the European Commission would hold off on kick-starting an "excessive debt proceeding" - a process that would likely result in Italy becoming the first eurozone constituent to face a fine (potentially extending into the billions of euros) for violating the bloc's stringent fiscal rules.

According to reports, the EU was holding off to give the Italian government more time to try and come up with a compromise. Meanwhile, both the League and the Five Star Movement have trudged ahead with a plan to have the Italian Treasury and Bank of Italy issue mini-BOTs - bonds that ostensibly would help the Italian government settle overdue payments, but which critics have denounced as a parallel currency. ECB President Mario Draghi denounced the plan as a step toward launching a parallel currency.

Now, just as gold prices are climbing to their highest levels in six years, the ECB is letting the Italian government know that it won't sit by and allow the Bank of Italy to sell off its gold reserves to help right the country's troubled finances.

Its just another example of the ECB ratcheting up the financial pressure on the Italian government, while asserting its control over the European Banking System. Late last year as the budget battle between Rome and Brussels flared, the ECB subtly threatened to sit back and watch the Italian financial system implode if Italian bond yields skyrocket.

Coming after the Italians gold reserves is yet another tactic by the ECB to bring the Italian populists to heel.