Even a billionaire cannot save the EU from itself
The world‚Äôs richest hedge fund manager, George Soros, says Europe‚Äôs great project, the European Union, is at risk. Even if it survives it is doomed, he says, to a period of stagnation and fragility, rendering it powerless on a world scene dominated by powerful blocs.
At 83 and insisting that he has retired, Soros still commands attention. He appeared at the European Council on Foreign Relations in London on Wednesday (he is a main funder) where he offered an off-the-cuff judgment that a central bank in an independent Scotland would be a risky endeavor. He generated headlines in a country that is nervous of a breakup of the Union. He dominated the morning‚Äôs BBC Today program, required listening for all public figures. He addressed a packed lecture hall at his alma mater, the London School of Economics and attended a meeting at the House of Commons.
Soros‚Äô fame is a mixture of fear, awe, admiration and prejudice. At the same time, his reputation, at least among liberals, is one of generosity and vision. In the past three decades he has invested $8 billion in promoting democracy in the former Communist states of Central and Eastern Europe, including the former republics of the Soviet Union — and later further afield in Africa, Latin America and Europe.
He‚Äôs known in the UK as ‚Äúthe man who broke the Bank of England,‚ÄĚ for his massive short selling of the pound in 1992, forcing the UK out of the European Exchange Rate Mechanism and costing the Bank ¬£3.4 billion in efforts to defend the currency. This would have eventually happened anyway, Soros argues.
Russian President Vladimir Putin blames Soros for stirring up rebellion in Ukraine through his foundation during the ‚ÄúOrange Revolution.‚ÄĚ But this would have happened anyway, Soros says.
Malaysia‚Äôs former Prime Minister Mahathir Mohamad blamed Soros for ‚Äúhelping to trigger the economic meltdown‚ÄĚ of Southeast Asian currencies in 1997, adding, ‚Äúcoincidentally, Soros is a Jew.‚ÄĚ Soros said he had nothing to do with the currency crisis, and even Mahathir later said that Soros had no part in it. Soros, shrugging off the racial smear, remarked that he had to thank Mahathir for making him famous in the region.
It‚Äôs Europe that preoccupies Soros now. He believes, with many others, that the introduction of a common currency in 2000 was, as he put it in a recently-published book, The Tragedy of the European Union, part of ‚Äúpiecemeal social engineering,‚ÄĚ a step that would need other steps to secure it; in this case, the creation of a political union to give the currency democratic backing.
‚ÄúOnly in retrospect,‚ÄĚ Soros writes, did he come to see the euro zone as structurally flawed. It is vulnerable to shocks like the crash of 2008, it lacks common fiscal or political policies and its most powerful nation — Germany — is reluctant to take the bold steps that could secure the currency and the EU. The ultimate failure of the euro zone project will be Germany‚Äôs fault, he says.
I asked him about this at the European Council on Foreign Relations. He said that Germany ‚Äúfulfilled my worst fears — it‚Äôs endangering the EU. It‚Äôs transformed the Union¬† from what it was meant to be — a voluntary association which sacrificed their sovereignty for the common good — into a creditor and debtor organization; a two-tiered Europe, north and south, badly divided.‚ÄĚ
In his book, Soros says that ‚Äúthe present generation of political leaders in Berlin abandoned the historical perspective of their elders and became unabashed in pursuing Germany‚Äôs national interest. They no longer try to be good Europeans at any price.‚ÄĚ Germany, he says, does not use its power enough.
Soros‚Äô suggested solutions are also tough on Germany. To save the EU and the euro, he argues, Germany must do one of two things. It must mutualize the debt by creating what he calls ‚Äúa proper banking union,‚ÄĚ and issuing Eurobonds — which the German Constitutional Court would likely declare unconstitutional. Or it must save the euro zone by leaving it.
His thinking is this: The ‚ÄúGerman‚ÄĚ euro is undervalued, thus helping Germany to be one of the most successful exporting countries in the world. Were Germany to leave the euro zone, its new currency — presumably the mark — would appreciate rapidly. The euro, by contrast, would depreciate and euro zone countries‚Äô exports would benefit almost instantly, while Germany‚Äôs would suffer as quickly.
The first prescription is much talked of, but so far Germany has refused to act. Mutualization would mean Germany would accept responsibility for much weaker and still unreformed economies. This is so far a political impossibility within the country. The second is a typically bold Soros idea, which, because of its strongly adverse effects on the German economy and on employment, could hardly be envisaged by any leader who wished to stay in power.
Soros is right that Germany is faced with a dilemma. It is an indispensable nation, but it does not want to be. It can secure the currency and the EU by taking on larger sacrifices than it has already made, but these are politically undesirable and perhaps constitutionally prohibited.¬† German Chancellor Angela Merkel had a famous victory last year that won her the right to make the hardest decisions facing any European leader.
The EU, Soros says, is in a tragic position because it cannot do what needs to be done. It‚Äôs thus condemned to hard times and blighted lives, especially for the young in the South — Greece, Spain, Italy and Portugal. It will be burdened with internal nightmares while another tragedy unfolds on its eastern border in Ukraine.
Soros‚Äô dream of a united and free continent, the animating vision of the founders of the EU, is receding. Even the world‚Äôs most active philanthropist cannot save the old continent from itself.
PHOTO:¬†George Soros speaks on stage at the Annual Freedom Award Benefit Event hosted by the International Rescue Committee at the Waldorf-Astoria in New York November 6, 2013.¬†REUTERS/Andrew Kelly