George Soros has issued a passionate plea to the German government to
lead the eurozone out of recession by boosting growth, creating a joint
fiscal authority and guaranteeing common bonds, or itself leave the
currency union to save the future of Europe.
By Quentin Peel: “Lead or leave: this is a legitimate decision for Germany to make,” the billionaire bankster financier said in an interview with the Financial Times. “Either throw in your fate with the rest of Europe, take the risk of sinking or swimming together, or leave the euro, because if you have left, the problems of the eurozone would get better.”
By Quentin Peel: “Lead or leave: this is a legitimate decision for Germany to make,” the billionaire bankster financier said in an interview with the Financial Times. “Either throw in your fate with the rest of Europe, take the risk of sinking or swimming together, or leave the euro, because if you have left, the problems of the eurozone would get better.”
“It
is entirely dependent on Germany’s attitude,” he added. “If they insist
on a policy of austerity, of reinforcing the current deflationary
stance, and they won’t budge from that, then in fact it would even be
better for them in the long run [to leave].”
Mr.
Soros, a strong supporter of European integration but an outspoken
critic of Germany’s eurozone crisis management since 2010, praised the
latest move by the European Central Bank to return to buying eurozone government bonds as “a more powerful step than the previous ones.
“It
will have an effect,” he said. “It could even lay the groundwork for an
eventual solution. But it is a stopgap, not a solution.”
Simply
announcing the possibility of ECB intervention should reduce the risk
premium Madrid has to pay on its bonds, but it would not be enough to
stop the current deflationary spiral, Mr. Soros said. He did not expect
Spain to apply for support “until it has its back to the wall”.
Demanding
tougher austerity conditions from countries such as Spain and Italy,
however, would reinforce the division in the eurozone between debtors
and creditors: “It is a step towards making a two-tier Europe
permanent.”
Mr.
Soros, 82, will spell out his fears that such a split would lead to the
eventual collapse of the currency union – and of the common market and
the European Union as a whole – in a speech on Monday night in Berlin.
He has also published a lengthy essay on the “tragedy” of Europe in the
latest New York Review of Books.
He
made clear, however, that his preferred solution is for Germany to
abandon its deflationary stance and behave as a “benevolent hegemon”
towards its partners, rather than leave the euro.
“Politically it would be a terrible blow,” he
said. “All the pro-Europeans I know are shocked by this idea that
Germany should leave the euro. It would be much more desirable if
Germany underwent a change of heart. Once they look at the costs, they
may want to stay.”
To
prevent the present confrontation between debtors and creditors
becoming permanent would require a fully-fledged “European fiscal
authority” (EFA) – a sort of European monetary fund – which would assume
the solvency risk of all government bonds purchased by the ECB, he
said.
The eurozone
should aim for nominal growth of at least 5 percent, with higher
inflation – for a limited period – than the German Bundesbank has ever
been prepared to allow. Without the prospect of growth, the debtors
would remain in a “deflationary trap” and eventually be forced to
default.
An EFA
would take over the eurozone rescue funds – the €440 billion European
Financial Stability Facility and the €500 billion European Stability
Mechanism – and establish a “debt reduction fund”. The latter, very
similar to a “debt redemption fund” proposed by the council of economic
advisers to the German government, would acquire all eurozone government
debt in excess of 60 percent of their gross domestic product – the debt
ceiling they are supposed to aim at. The fund would then issue “debt
reduction bills” as a joint obligation of the eurozone countries. Mr.
Soros suggests they should be treated as the highest quality collateral
by the ECB, and would be attractive to investors.
“You
have about €700 billion of deposits at the ECB which currently earn
zero interest,” he said. “Instead of keeping that money with the ECB,
the banks would put it into these bills, which would have an interest
rate better than zero.”
The concept of giving eurozone debt a joint guarantee is fiercely resisted in
the German government. Angela Merkel, the chancellor, and Wolfgang
Schäuble, finance minister, agree that it cannot happen until a “fiscal
union” has been established in Europe to police budget discipline. Many
of their supporters reject the idea outright.
“Unless
they change their view of the euro, they are – without intending it –
pushing Europe into an intolerable situation,” Mr. Soros said. “My real
concern is that the euro is now endangering the EU. If it falls apart in
acrimony, Europe will be worse off than it was before it started.”
He
said he expected to be attacked in Germany for speaking as a financial
speculator. “But I am not only a speculator. I have effectively retired.
I think it is appropriate to speak out at my age,” he said.
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