"SPIEGEL ONLINE: In Germany, once the motor of European integration, people are openly discussing the possibility of leaving the euro zone. Many Germans believe that a return to the deutschmark would be cheaper than to remain stuck in a flawed currency union. Are they right?
Soros: There is no question that a breakup of the euro would be very damaging, very costly, both financially and politically. And the biggest loss would be incurred by Germany. Germans have to bear in mind that, effectively, they have suffered practically no losses so far. Transfers have all been in the form of loans, and it is only when the loans are not repaid that real losses will be incurred.
(...)
SPIEGEL ONLINE: Once again: How is that Germany's fault?
Soros: This is the joint responsibility of everyone who was involved in the introduction of the euro without understanding the consequences. When the euro was introduced, the regulators allowed banks to buy unlimited amounts of government bonds without setting aside any equity capital. And the European Central Bank discounted all government bonds on equal terms. So commercial banks found it advantageous to accumulate the bonds of the weaker countries to earn a few extra basis points.
SPIEGEL ONLINE: And that then dragged down interest rates?
Soros: Yes. The lower interest rates fueled housing and consumption booms in countries such as Spain and Ireland. At the same time, Germany, struggling with the burdens of reunification, tightened its belt and became more competitive. All this led to a wide divergence in economic performance. Europe became divided into creditor and debtor countries. All these conditions were created by European authorities, including the European Central Bank, which was largely modeled after the Bundesbank. Germans tend to forget now that the euro was largely a Franco-German creation. No country has benefited more from the euro than Germany, both politically and economically. Therefore what has happened as a result of the introduction of the euro is largely Germany's Schuld -- its responsibility.
(...)
SPIEGEL ONLINE: Do you think Angela Merkel is prepared to take such steps?
Soros: She is trapped. Merkel has realized that the euro is not working, but she cannot change the narrative she has created because that narrative has caught the imagination of the German public, and the German public has accepted it.
SPIEGEL ONLINE: The narrative essentially says that crisis-stricken nations simply haven't made the necessary reforms, unlike Germany.
Soros: Right. But at the same time, Chancellor Merkel realizes that what is happening is not working, and so she is determined to preserve the euro.
SPIEGEL ONLINE: German Finance Minister Wolfgang Schäuble gave an interview to SPIEGEL saying that now is the time for bold steps. He outlined ideas for a closer political union in Europe.
Soros: Schäuble is representative of the Germany of Helmut Kohl. He is the last European standing, and he is a tragic figure, because he understands what needs to be done, but he also realizes the obstacles that stand in the way, and he cannot find a way to overcome these obstacles. So he is really suffering.
(...)
SPIEGEL ONLINE: If you were still an active investor, would you be tempted to make massive bets against the euro?
Soros: As an investor, I would be very pessimistic, especially about Europe. But as a believer in an open society, I have to put my faith in the people and leaders of Europe to show some reason." [Spiegel Online]
Soros: There is no question that a breakup of the euro would be very damaging, very costly, both financially and politically. And the biggest loss would be incurred by Germany. Germans have to bear in mind that, effectively, they have suffered practically no losses so far. Transfers have all been in the form of loans, and it is only when the loans are not repaid that real losses will be incurred.
(...)
SPIEGEL ONLINE: Once again: How is that Germany's fault?
Soros: This is the joint responsibility of everyone who was involved in the introduction of the euro without understanding the consequences. When the euro was introduced, the regulators allowed banks to buy unlimited amounts of government bonds without setting aside any equity capital. And the European Central Bank discounted all government bonds on equal terms. So commercial banks found it advantageous to accumulate the bonds of the weaker countries to earn a few extra basis points.
SPIEGEL ONLINE: And that then dragged down interest rates?
Soros: Yes. The lower interest rates fueled housing and consumption booms in countries such as Spain and Ireland. At the same time, Germany, struggling with the burdens of reunification, tightened its belt and became more competitive. All this led to a wide divergence in economic performance. Europe became divided into creditor and debtor countries. All these conditions were created by European authorities, including the European Central Bank, which was largely modeled after the Bundesbank. Germans tend to forget now that the euro was largely a Franco-German creation. No country has benefited more from the euro than Germany, both politically and economically. Therefore what has happened as a result of the introduction of the euro is largely Germany's Schuld -- its responsibility.
(...)
SPIEGEL ONLINE: Do you think Angela Merkel is prepared to take such steps?
Soros: She is trapped. Merkel has realized that the euro is not working, but she cannot change the narrative she has created because that narrative has caught the imagination of the German public, and the German public has accepted it.
SPIEGEL ONLINE: The narrative essentially says that crisis-stricken nations simply haven't made the necessary reforms, unlike Germany.
Soros: Right. But at the same time, Chancellor Merkel realizes that what is happening is not working, and so she is determined to preserve the euro.
SPIEGEL ONLINE: German Finance Minister Wolfgang Schäuble gave an interview to SPIEGEL saying that now is the time for bold steps. He outlined ideas for a closer political union in Europe.
Soros: Schäuble is representative of the Germany of Helmut Kohl. He is the last European standing, and he is a tragic figure, because he understands what needs to be done, but he also realizes the obstacles that stand in the way, and he cannot find a way to overcome these obstacles. So he is really suffering.
(...)
SPIEGEL ONLINE: If you were still an active investor, would you be tempted to make massive bets against the euro?
Soros: As an investor, I would be very pessimistic, especially about Europe. But as a believer in an open society, I have to put my faith in the people and leaders of Europe to show some reason." [Spiegel Online]
via B.
