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German stance risks collapse of the currency union and ultimately the political union as well, says financier
GEORGE SOROS says Germany should behave as a "benevolent hegemon" and either take a decisive role in leading Europe toward meaningful growth or exit the single currency. In an interview with Reuters elaborating on an essay in The New York Review of Books titled 'The Tragedy of the European Union and How to Resolve It', the newly-wed, 82-year-old financier and philanthropist said Germany should relax its insistence on austerity and help the eurozone's weaker nations escape a spiral of increasing indebtedness and economic decline.
In a third interview, with the Financial Times, Soros urged Germany to create a joint fiscal authority and guarantee common bonds.
"Lead or leave: this is a legitimate decision for Germany to make," he said. "Either throw in your fate with the rest of Europe, take the risk of sinking or swimming together, or leave the euro, because if you have left, the problems of the eurozone would get better.
"It is entirely dependent on Germany's attitude," he went on. "If they insist on a policy of austerity, of reinforcing the current deflationary stance, and they won¹t budge from that, then in fact it would even be better for them in the long run [to leave]."
Soros was speaking ahead of Wednesday's ruling from Germany's constitutional court on whether the German government's backing for the new ESM [European Stability Mechanism] bailout fund is legal or not.
A consistent critic of Germany¹s eurozone crisis management, Soros praised ECB president Mario Draghi's bond-buying scheme as a "more powerful step" than previous ones. Soros predicts it will have an effect. "But it is a stop-gap, not a solution."
He said that demanding tougher austerity conditions as a precondition to bail-out from countries such as Spain and Italy reinforces the division in the eurozone between debtors and creditors: "It is a step towards making a two-tier Europe permanent." Such a split, he believes, would lead to the eventual collapse of the currency union and ultimately the political union itself.
The German political calculus that keeping peripheral or economically-weak stakes in the union is ultimately more digestible than the debt repayments a surging euro would inflict on Germany, is a position equally served by leaving the euro.
While politically it would be a "terrible blow" for Germany to exit, it's better than the alternative, Soros says. "My real concern is that the euro is now endangering the EU. If it falls apart in acrimony, Europe will be worse off than it was before it started." Soros is expected to flesh out his views further in an speech in Berlin tonight. ·