Soros: Germany Could Solve the Euro Crisis by Exiting
Interesting comments today by George Soros regarding the Euro crisis. Like myself, he’s long been saying that Europe should unite rather than disintegrate. But today, he raised another option – that Germany could solve the crisis by leaving the Euro (via Huffington Post):
The crisis “is having tremendous impact in the state of affairs, it is pushing the EU into a lasting depression, and it is entirely self-created,” said Soros, Chairman of Soros Fund Management.
“There is a real danger of the euro destroying the European Union. The way to escape it is for Germany to accept … greater commitment to helping not only its interests but the interests of the debtor countries, and playing the role of the benevolent hegemon,” he said at a luncheon hosted by the National Association for Business Economics.
…
The influential fund manager floated another solution to the crisis that has gone on for more than two years: Germany could leave the euro, “and the problem would disappear in thin air,” as the value of the euro declines and yields on the bonds of debtor countries adjust.
I’d put the probability of this happening at “very low”. If Germany were to leave the Euro they’d introduce their own currency, which would sky rocket in value versus the Euro and put them in a competitive bind. I don’t think Soros is right that Germany leaving would solve the crisis because it wouldn’t fix the true problem, which is the lack of sovereignty and the lack of a central bank connected to a national treasury. So Europe would likely remain mired in a recession, Germany’s competitive position would weaken and they’d likely begin to see a major turnaround in their record low unemployment rate as the export boom turned into a bust. The idea of Germany leaving sounds better than it would likely turn out in reality….
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
Follow Me:
8 Comments
You think you know better than Soros, the man who broke the bank of England?
Where sir are your billions?
That’s your argument? That Soros is a smart guy so he must be right? You should be embarrassed by this post.
“Germany’s competitive position would weaken and they’d likely begin to see a major turnaround in their record low unemployment rate as the export boom turned into a bust.”
Not too sure about this assertion given Germany’s partners such as Poland, have been rising strongly. Germany’s rising trading partners have been from the East with Russia becoming a prominent trading partner in recent years.
In fact Germany going forward will be a strong beneficiary from “Eastern Promises”. Ukraine, Latvia and Hungary have all benefited from IMF support after the burst of their respective credit bubble. In terms of deleveraging, they are much more advanced in the process than their Western counterparts (Spain, etc.).
Just a fact CEE is now the second largest car making area in Europe, representing 20% of total European production versus only 4% in 2003 according to Gavekal.
German manufacturers are now sourcing more from CEE due to restoration of full cost-competiveness which as yet to happen for instance in France…
Germany has enjoyed its first trade surplus with Asia in 2012 while trade surplus with the CEE has almost disappeared according to Gavekal.
Eastern promises…while Western drowns in sorrows…
Best,
Martin
“and the problem would disappear in thin air,” as the value of the euro declines and yields on the bonds of debtor countries adjust.”
excuse me Mr. Soros. but isn´t that exactly what´s been going on for the last years (euro falls, PIIGS yields up)?
i agree with Cullen, that a German exit would do nothing other than pushing Europe´s biggest economy in depression.
and i doubt that Germany´s then lost part of the export pie will magically show up in the rest of the euro zone. i´d argue that in the beginning it would mostly benefit China and the US since they have productive assets that a lot of southern Europe lacks.
It seems that Soros is talking its book and he is still short the Euro
.
Also suggested by Ken Griffin four months back: http://www.nytimes.com/2012/06/27/opinion/to-save-the-euro-germany-must-leave-it.html
I’ve been reading Steve Keen, Mish Shedlock, and yes (despite his exaggerated tone) Michael Hudson too. It seems to me there’s some agreement here between post-Keynesian MCT, Austrian, and MMT that what’s happening in Europe is that bond holder’s interests are being put ahead of Europe’s interests. Somebody probably has to take a haircut here… or things will just continue to disintegrate. The austerity measures are not necessarily working like Germany and the IMF thought they would (the IMF recently acknowledged this in a report). Keen points out that unemployment in Greece and Spain are at crisis levels (25%.. and up to 50% for young people). Much more damage was done to Ireland by austerity than was predicted by the IMF (this the IMF admitted). Lithuania just tossed out their conservative government due to austerity overload. “Golden Dawn” (a neo-facist party in Greece) is now a viable 3rd party. Hudson documents many problems in austerity embracing Latvia. A new socialist government in France is turning against austerity as well. Greece is being forced to hawk it’s public assets to pay the bills.
Germany seems to be harming its long term interests by insisting on southern European bailout packages which amount to those countries borrowing more money through private banks while instituting wave after wave of austerity measures. The debt load just keeps getting bigger, and the problems multiply. Keen and Shedlock say it’s not just kicking a can down the road, it’s kicking a snowball (which grows bigger with each kick). Something’s got to give… and I think Germany is being awfully short sighted in this matter. Either way, their exports will be harmed. Perhaps Germany leaving the Euro will cause the least damage overall.
I have been looking at UK / Germany real trade flows and it appears to becoming the last growing market for Germany.
They have a almost symbiotic relationship since the big bang and even a bit earlier then 1986.
Its got to the point where the UK is willing to burn its Vassal states in Ireland & Iberia and thus its income stream so that it can get real goods from both Germany & China.
You need to look at sov states withen the Euro soup and thus their strange dynamics……….from a real trade perspective the euro region is a effective colony of the UK.