Germany, the eurozone’s largest economy and one of the most stable countries in terms of finance, bears some of the blame of the prolonged crisis of the European monetary union, said the billionaire George Soros for CNBC.
“We have gone from crisis to crisis. Germany did the minimum that was necessary to preserve the euro but no more! And that is what maintained the crisis conditions which are now four-years old,” said Soros earlier this week at the World Leaders Forum.
American billionaire sees problems for Europe on two levels. First, Germany is in the driver’s seat. Although it does not dictate economic policies, there is no major plan proposed in Europe without having previously obtained the consent of Berlin.
The second problem is that Germany imposes austerity measures on indebted countries and forced budget cuts is a solution that is not effective, according to Soros. The situation can only get worse, he warned.
“I am afraid Europe is in an existential crisis. The debtor countries are subordinated to the dictates of the creditor countries and have effectively been relegated to second-class membership. I think this is politically not acceptable,” said the American billionaire.
Austerity measures could trigger a deflationary spiral, leading to lower wages, redundancies and reduce consumption. Such a development would create a lasting recession, as the debt burden continues to grow, he said.
Joseph Stiglitz, a U.S. economist and Nobel winner, shares the same opinion with Soros: the austerity measures in Europe are not effective: “Austerity won’t bring back prosperity; it’s not a growth solution. The European Union needs more integration, more fiscal union, a banking union and policies that will enable countries to catch up,” said Stiglitz.
Soros predicts a recession for Germany this year: “I think after the German elections in September there will be a change in German attitude because by that time … I think Germany will also be in a recession.”
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