Billionaire George Soros, one of the most famous investors in the world, who recently has been speaking often about the crisis that affects Europe, pictured for the business daily Financial Times the plan that would put a stop to the European crisis.
1. Euro area Member States shall conclude a new treaty that would create a common treasury of the euro area in a timely manner. European Central Bank (ECB) will cooperate with the European financial stability mechanism (EFSF) – the ECB will provide liquidity, and EFSF will cover the risk of insolvency.
2. EFSF will take the Greek bonds held by the ECB and the IMF. The measure would restore the cooperation between the ECB and the euro area governments and will assure the cut of Greek debt by participation of EFSF.
3. EFSF will then be used to guarantee the banking system, not government bonds. The recapitalization is delayed, but it will take place.
4. In exchange for collateral, big banks will agree to get guidance from the ECB on behalf of national governments. The banks that will reject ECB interference will not qualify for loans with preferential interest rates offered by the ECB.
5. ECB will instruct the banks to maintain credit lines and credit portfolios and appoint inspectors who will monitor and control the risks to which banks are exposed. The measure will eliminate one of the main causes of the current crisis of liquidity and will calm the financial markets.
6.In order to control the other major problem, namely the inability of governments to borrow at reasonable interest rates, the ECB will reduce the rate of refinancing interest, will encourage governments to issue Treasury bills and encourage banks to keep liquidity in the form of such treasury bills.
ECB purchases will be sterilized by issuing the ECB’s own treasury bonds. The prevention of the risk of insolvency will be provided by EFSF. ECB will stop purchases on the open market. All these measures will allow countries like Italy to borrow on short term at a very low cost without the ECB to credit the governments.
7. Markets will be impressed by the fact that the authorities are united and have sufficient funds available. Banks will be recapitalized, and the euro area Member States will be able to talk about a common fiscal policy in a calm fiscal environment.