Even a billionaire cannot save the EU from itself

March 14, 2014

The world’s richest hedge fund manager, George Soros, says Europe’s 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’s 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’ 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’s known in the UK as “the man who broke the Bank of England,” 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 “Orange Revolution.” But this would have happened anyway, Soros says.

Malaysia’s former Prime Minister Mahathir Mohamad blamed Soros for “helping to trigger the economic meltdown” of Southeast Asian currencies in 1997, adding, “coincidentally, Soros is a Jew.” 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’s 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 “piecemeal social engineering,” 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.

“Only in retrospect,” 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’s fault, he says.

I asked him about this at the European Council on Foreign Relations. He said that Germany “fulfilled my worst fears — it’s endangering the EU. It’s 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.”

In his book, Soros says that “the present generation of political leaders in Berlin abandoned the historical perspective of their elders and became unabashed in pursuing Germany’s national interest. They no longer try to be good Europeans at any price.” Germany, he says, does not use its power enough.

Soros’ 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 “a proper banking union,” 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 “German” 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’ exports would benefit almost instantly, while Germany’s 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’s 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’ dream of a united and free continent, the animating vision of the founders of the EU, is receding. Even the world’s 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


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Financial engineering worked fine for Mr. Soros and his buddies in the top 1% global financial elite. It has not worked at all for average people around the world. The unregulated movement of money for profit has caused unthinkable wealth disparity and destroyed “western” governments and social safety nets. What is the penalty for destroying the global economy and social infrastructure because a few multi-billionaires a “vision”?

Posted by njglea | Report as abusive

njglea, You don’t want to know what the penalty is, but the world have been penalized enough already. The banking intellectuals need to throw out all their math and formulas and start fresh. They can have some or none. L.

Posted by 2Borknot2B | Report as abusive

World’s leading hypocrite on duty again, I see. A “philantrophist” who deliberately ruined entire countries says Germany had divided the EU into creditors and debtors, and then tells us he wants “eurobonds”. He just wants the German taxpayer to transfer money to him – or why doesn’t he say that Greece could leave the euro? Why the media continue to give this fraud a stage remains the mystery of our age.

Posted by Gaia1990 | Report as abusive

OK, Mr. Soros’ opinion of the Eurozone’s problem makes sense. The current situation is ridiculous and oppressive, as the article states. So, can Soros not get some air time with Merkel and Schaeuble and persuade them to change Germany’s direction?

It would be ironic, should it come to pass that the non-German nations eject Germany from the Eurozone, that it happens because a nation is too well-managed, productive and successful to remain in the Zone.

Posted by mind_emergent | Report as abusive

I wish that David Miliband was our foreign policy chief! Catherine Ashton is not doing a bad job, but that bugged phone-call with the Lithuanian foreign minister where they were discussing the possibility that rebel provocateurs shot protesters, sounded quite bad! This is an obvious possibility that needs to be investigated in every such case of insurgency or rebellion: how is it then that Ms. Ashton had not considered this possibility until it was suggested to her by the Lithuanian FM? How could she possibly be surprised by such a suggestion? Is she strong enough to be in the position she is holding? Or might she be manipulated by European nations with biased interests, or by the Russians, or by the Iranians? Might her agenda be manipulated by the power of suggestion? Is she thorough enough? Does she have enough fortitude to follow through and challenge counterparties, to make them verify their good will? Do her counterparties respect her?

Posted by matthewslyman | Report as abusive

He’s likely creating the problems – why would he want to solve them?

Posted by Overcast451 | Report as abusive