George Soros made news yesterday proclaiming the EU has three days left and warning the summit this week could turn into a “fiasco.” Talking about the prospect of a German empire and a permanently depressed periphery, Soros raised the shackles of many an investor in a 43 minute interview on Bloomberg TV. Many claimed he was talking his book (attempting to profit, or avoid losses, from positions he’s taken).
Some of the highlights from the interview:
Soros proposed a solution to the European dilemma which would lower interest costs to debtor nations. This would involve the formation of a European Fiscal Authority (EFA) and debt reduction fund. An EFA fund would enable problem Eurozone countries to borrow funds at much lower rates; basically European Treasury Bills backed by the fund, while agreeing to implement structural economic reforms.
Soros said Greece leaving or being pushed out of the Eurozone is expected now and would actually strengthen the EU. He said it is hard to see how Greece can meet the conditions that have been set, and Germany is unwilling to modify those conditions. Investors should “calculate” on Greece being forced out, he added.
Soros explained this summit is more important than the previous ones, in that the prior summits delayed resolution and allowed the problem to grow, while this week’s summit could result in a resolution.
Soros doubts there will be a breakdown of the Euro because it would be expensive and destabilizing, particularly for Germany. The Germans have the best performing economy and therefore have the most to lose from a mass exodus from the Euro.
Soros said Angela Merkel has become a strong leader, but unfortunately she is leading Europe in the wrong direction. She is acting in good faith and this is what is making the situation so tragic, he added.
“There has been a breakdown in economic theory because of these financial bubbles,” Soros stated. He said the solution is there and can be resolved with a united front.
The financial markets are likely to force Spain into needing a full bailout according to Soros. He added that financial markets have the ability to push Euro countries into default because these countries can’t print their own money.
Soros said there is no “union without transfer” giving the example of parents giving their children money, or New York transferring money to Mississippi.