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​EU stagnation: Why Soros says the Euro threatens the Union

Patrick L Young is expert in global financial markets working in multiple disciplines, ranging from trading independently to running exchanges.

Published time: March 13, 2014 14:19
George Soros (Reuters / Ralph Orlowski)

Philosopher, plutocrat, poseur or perfectionist investor, George Soros has a remarkable pedigree for prophecy. His latest assessment? The euro may kill the EU itself.

Thanks to his investment acumen, George Soros is doubtless the richest philosopher in history, a position which has allowed him to bankroll all manner of activities from sponsoring Xerox machines in the Soviet bloc during the cold war to helping rebuild the New Europe towards a path of greater freedom after the collapse of Communism. Ultimately Soros’ greatest investment successes have been at what he calls “inflection” points - essentially where the linear process previously taken for granted, reaches maturity and there is a short sharp shock as the system reverses course in search of a new equilibrium. Perhaps more famous for endorsing liberal causes in the USA; in Europe, Soros is legendary for realizing the British Pound would have to exit the pre-Euro Exchange Rate Mechanism, giving his fund a profit of a billion Pounds ($1.6 billion).

Indeed, remaining outside the doomed euro has greatly benefitted Britain despite short-sighted Europhile ranting that Britain would be left behind by a great new wave of European growth. The growth has instead turned to despair as the eurozone, at best, stagnates. As Soros notes, the euro was an incomplete project, a currency without a common treasury. This has left sovereign governments exposed to risk of default. Had they maintained their own currency, governments could print more money to avoid euro-style default pressures.

The euro has perverted the entire EU dream. A voluntary association of sovereign and equal states surrendering some sovereignty for the common good has instead deteriorated into a highly toxic relationship between creditors and debtors. A seismic fiscal fissure has created a two tier Europe of haves and have nots. A new feudalism is developing, led by the wealthy Germans who claim hegemony over (Mediterranean) debtor states. In his new book “The Tragedy of the European Union” Soros adds that “the double meaning of the German word “Schuld” has played a key role. It means both debt and guilt. This has made it natural or “Selbstverstandlich” for the German public to blame the heavily indebted countries for their misfortunes.”

Soros is quick to note how this German position reeks of hypocrisy as Berlin broke euro treaty rules as early as 2003. Moreover, while the likes of Spain may not have had ideal economic policies, they were not, (like the Irish and others) explicitly culpable for their woes. Rather they had to support foreign banks at the whim of Berlin and Paris et al. Alas, Greece, Soros notes, is an entirely different issue: an entirely dysfunctional economy which lied in order to gain access to the euro (that EU hubris still permitted them in, is a separate area for discussion).

Germany has little intention of doing more than the minimum to keep the euro currency alive. That is a recipe for stagnation and Soros explicitly suggests the EU “may not survive.” This situation is exacerbated because "the banking sector is acting as a parasite on the real economy." Leverage remains too high and the threat of “too big to fail” still looms over the real economy. Sadly, the EU’s embrace of a socialist corporatist model with their bank brothers means they have stubbornly failed to address the key factors which created the path to melt-down in 2008.

Like him or loathe him, George Soros has a remarkable pedigree in spotting systemic weaknesses. His capacity for forensically analyzing complex systems has been remarkably, and repeatedly, successful. Moreover, the European Union’s fate is shaping up to resemble Japan’s - a nation which has had 25 years of stagnation. However Japan is a homogeneous unitary state. The EU is a mixture of nations who have provided varying (modest) degrees of consent only for the anti-democratic ethos of the EU to take control of increasing amounts of their lives. Whatever consent the EU may feel it has, that is evaporating rapidly as so many citizens are left without jobs or prospects. Eurozone unemployment is stagnant at 12% overall with extremes for youth unemployment in the region of 50% on the Mediterranean. Ultimately that is entirely unsustainable. When an analyst and investor with the pedigree of Mr Soros expresses a belief that the stubborn, cruel maintenance of the euro could provoke the collapse of the EU, it deserves to be taken seriously.

The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.

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