George Soros believes someone in the euro zone needs to step up and confront Germany.
Maybe even new Italian Prime Minister Enrico Letta.
In a recent speech, billionaire financier George Soros made an assertion aimed at the heart of the euro crisis: Germany should either agree to introduce “Eurobonds” – which would mutualize the public debts of all of the euro zone member states – or step out of the way and leave the euro, so that the remaining member states could move forward with debt mutualization.
Soros argued that the euro was in fact tearing apart the European Union. This line of thinking is already gaining popularity in Germany, as evidenced by the recent success of new political party Alternative für Deutschland (AfD), which shares the same view and is running on a platform that involves complete dissolution of the euro in order to save the EU.
For Soros, rescuing the EU doesn’t involve dissolving the euro, but instead tackling the key defect in the design of the common currency: the lack of fiscal union (debt mutualization) to go along with monetary union.
What Soros and AfD can both agree on is that the current structure of the euro is causing a political rift between “creditor” countries in the core of the euro zone, like Germany, and debtor countries, like Spain, Italy, and other crisis-afflicted member states in the euro periphery.
At a new speech given at a press conference in Italy on Sunday, Soros laid out his primary concern about how the euro was destroying the EU (emphasis added):
I have been very concerned about Europe. The euro is in the process of destroying the European Union. To some extent, this has already happened, in the sense that the EU was meant to be a voluntary association of equal states.
The crisis has turned it into something that is radically different: a relationship between creditors and debtors. And, in a financial crisis, the creditors are in charge. It is no longer a relationship between equals.
Much has been made of the way financial crisis has given way to political crisis centered on tensions between creditor states and debtor states in the euro zone.
Recently, this political crisis has been complicated by the German election. German politicians don’t want to be seen as lenient toward debtor states in financial distress like Italy and Spain, because the German electorate does not have favourable views toward Germany bailing out other countries.
This is why political parties like AfD are gaining support. Dissolving the euro means taking a step further away from debt mutualization instead of toward it, as Soros proposes.
The AfD plan is something of a nationalistic, anti-European approach to tackling the euro crisis.
Debt mutualization, on the other hand, is “pro-Europe” in that it emphasises further integration – but it requires treaty change.
“The authorities are trying to deal with the crisis according to these treaties, because they recognise that it is very difficult to change them,” said Soros in his Sunday speech. “They are also afraid that public opinion has turned against European integration, so they do not dare to bring up a treaty change.”
Public opinion does indeed seem to be turning against Europe and toward nationalism, as evidenced in recent elections in Italy, where the new anti-establishment, anti-European “Five Star Movement” took the largest voting share at the polls in February.
Soros calls this “the tragedy of Europe.”
He argues that what Europe needs instead is an anti-establishment, pro-European political movement:
This has generated political dynamics that are leading toward the EU’s disintegration. People who consider the current conditions intolerable become anti-European.
So we need some kind of political movement that recognises that conditions are in fact intolerable, but that Europe’s problems require a European solution – a pro-European but anti-establishment political movement.
Recently, conservative German economist Hans-Werner Sinn attacked Soros’s original ultimatum for Germany in an editorial on the Project Syndicate website.
In an 818-word reply in the comments section of the Sinn article, Soros argued that perhaps Italy could stand up to the Germans.
“The heavily indebted countries must channel the rising their citizens’ discontent into a more constructive channel by coming together and calling on Germany to make the choice,” wrote Soros.
“The newly formed Italian government is well placed to lead such an effort.”