George Soros believes that the euro is just a bubble, and this is why the whole monetary union is facing a severe debt crisis. The investor recently held a speech in Italy, then gave an interview to the Bloomberg TV, laying out these ideas. He has the solution to avoid a fiasco that could be fatal for Europe. In an article published recently in the British newspaper Financial Times, which was titled “How can Europe save from itself,” George Soros says that the euro area is run contrary to an ideal society, as the founders of the single currency wanted the monetary union to work.
In fact, the euro area is led like an anti-democratic world, where Germany dominates all other European countries. Neither Angela Merkel, German chancellor, did not want to live in such a society, says Soros. Europe is likely to reach a system that would perpetuate the deep divergences between creditor and the debtor members, making the euro area “a kind of German Empire”, while the periphery countries would be in a permanent economic depression, believes billionaire.
How to save Europe
Angela Merkel does not agree with the idea that the European Central Bank would have to save the monetary union’s fiscal problems. “And she’s right,” said George Soros. ECB president, Mario Draghi, agrees with this statement. A key issue in the next summit is just this: an European Fiscal Authority, a union in partnership with the European Central Bank to solve what the ECB can not do alone. In fact, the fiscal union could reduce tax liabilities of the Fund – a slightly modified form of European Debt Pact, proposed by Merkel herself, influenced by consultants from the Economic Commission and approved by Social Democrats in Germany. In exchange to structural reforms that Italy and Spain need, the Fund will own a significant part of their debts. It will fund, also, European Treasury – common obligations of EU member states – and countries with problems will benefit from cheaper financing.
European Treasury would present no rating risk and would be treated by authorities as the highest guarantee for transactions traded by the ECB. The banking system is in urgent need of cash without risk, the investor said. Currently, banks hold over 700 billion euros, ECB’s liquidity surplus, getting only a quarter of the 1% interest. Soros says that European Fiscal Pact could impose reasonable fines to compensate the failure of reforms. These would not be instant fines (as is happening now in Europe), but large enough to prevent parasite type loans. After these reforms would be taken, Eurobonds could be established.
“The man who beat the Bank of England” believes that massive adoption of these measures would improve the cost of borrowing for countries with problems (eg Italy and Spain). The question is: will Germans implement Soros’s scheme? Billionaire, otherwise not optimistic at all, is warning that the next EU summit could become a “fatal fiasco” if EU leaders will not take vital steps to restore the European economy .
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