Monday, August 20, 2012


George Soros, the billionaire investor, has warned Germany it has three months to save the eurozone or risk the destruction of the European Union and a “lost decade”.

George Soros says Germany has three months to save the eurozone
George Soros, the billionaire investor, said Germany would do the least required to save the euro Photo: AP
Speaking at a conference in Italy Mr Soros said the eurozone’s fate lay firmly with Germany, which he urged to agree to measures which would help the region’s ailing banking system and ease borrowing costs among the most troubled member states.
“In my judgment the authorities have a three months’ window during which they could still correct their mistakes and reverse the current trends,” he said.
“By the authorities I mean mainly the German government and the Bundesbank because in a crisis the creditors are in the driver’s seat and nothing can be done without German support.
“In the 1980’s Latin America suffered a lost decade; a similar fate now awaits Europe. That is the responsibility that Germany and the other creditor countries need to acknowledge.”
Mr Soros, who famously made $1bn betting against the pound in 1992, said the Greek crisis would come to a head this autumn.
He argued that although Greek voters were likely on June 17 to elect a government prepared to abide by the austerity terms required to qualify for future bailout funds, the terms would ultimately prove impossible to meet.
“No government can meet the conditions so the Greek crisis is liable to come to a climax in the fall. By that time the German economy will also be weakening so that Chancellor Merkel will find it even more difficult than today to persuade the German public to accept any additional European responsibilities. That is what creates a three months’ window.”
Arguing that the eurozone crisis “threatens to destroy the European Union”, he said the region’s banks would need a European deposit scheme in order to stem the capital flight already evident.
He also supported Spain’s call for the banks to be able to access direct financing from the European Stability Mechanism, the bailout fund, and said heavily indebted countries would need relief on their financing costs.
There are various ways to provide it but they all need the active support of the Bundesbank and the German government.”
Spanish borrowing costs have spiked to unsustainable highs during the crisis while German borrowing costs are at record lows as investors rush to place their money in the safest place.
France, Italy and Spain are in favour of the introduction of so-called eurobonds, which would essentially pool the debt of all eurozone members, spreading risk, but Germany is strongly opposed to the idea.
Mr Soros said that while an orderly break-up of the euro could be possible “in a few years’ time”, the likelihood was that it would survive because a collapse would come at too high a price for Germany.
He said Germany would be left with large unenforceable claims against the periphery countries, with the Bundesbank alone having over a trillion euros of claims against other central banks by the end of this year.
“So Germany is likely to do what is necessary to preserve the euro – but nothing more.” He said Europe would ultimately become “a German empire with the periphery as the hinterland.”

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