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Soros: Euro in crisis

BILLIONAIRE investor George Soros yesterday launched a blistering attack on German fiscal policy, warning that its unwavering pursuit of austerity savings is putting the future of the European Union and the single currency at risk.

“By insisting on pro-cyclical policies, Germany is endangering the European Union. I realise that this is a grave accusation, but I am afraid it is justified,” he said during a speech at Berlin’s Humboldt University.

“By cutting its budget deficit and resisting a rise in wages to compensate for the decline in the purchasing power of the euro, Germany is actually making it more difficult for the other countries to regain competitiveness,” he added.

German chancellor Angela Merkel earlier this month unveiled plans to slash the budget by €80bn (£65.8bn) over the next four years.

Soros slammed the programme, calling it “a recipe for disaster because it pushes the debtor countries into a deflation cycle and imposes stagnation and, worse, and that creates resentment”.

In an interview published yesterday ahead of the speech, Soros said he “could not rule out a collapse of the euro”.

Germany, which still runs a trade surplus and is the Eurozone’s largest exporter, has come under fire recently for implementing austerity measures that will put already-faltering domestic demand and consumer confidence at risk and for effectively imposing wage cuts on Club Med countries.

Gabriel Stein at Lombard Street Research said George Soros was spot on that Germany’s austerity measures were endangering the euro. Stein said that the single currency is inherently flawed, adding that for the euro to survive we will need fiscal integration. “But this will be an anathema to German taxpayers as long as countries like Italy are in the union,” he said.

Economically, it would make a lot of sense for Germany to leave the Eurozone, Stein said, but noted that a unilateral exit would probably break the Franco-German alliance that has been the cornerstone of Western European policy for more than half a century.

George Soros also warned yesterday that the cost of the Greek aid package and associated conditionality could send the Greek economy into a “death circle” as economic contraction will see tax revenues decline and increase the budget deficit again. “Then it becomes a vicious cycle. I would call it a death circle. That’s really the danger,” Soros said.