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.
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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….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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