Billionaire investor George Soros on Thursday told European officials that the time for postponing substantive action on the euro zone debt crisis is over—otherwise they risk the launch of another Great Depression.
Reuters reported that Soros, writing in an opinion piece, said that officials must prepare themselves for the possibility that not only Greece but also Portugal and Ireland as well might default and depart the euro zone.
He was quoted saying, “It appears the authorities have reached the end of the road with their policy of ‘kicking the can down the road.’ Even if a catastrophe can be avoided, one thing is certain: the pressure to reduce deficits will push the euro zone into prolonged recession. This will have incalculable political consequences.”
Soros recommended four actions that would be both expensive and difficult to execute, given the reluctance of some nations within the euro zone to engage in them:
- Protect bank deposits to avoid bank runs in peripheral nations
- Sustain some banks in defaulting countries to allow their economies to survive
- Recapitalize the European banking system and put control in the hands of Europe rather than individual countries
- Protect the bonds of deficit countries.
Soros also recommended another action. "All this would cost money," he said. "There is no alternative but to give birth to the missing ingredient: a European treasury with the power to tax and therefore to borrow." Such an action would require a new European Union (EU) treaty, which he urged European leaders to begin upon immediately because it would likely be a slow process.
"Once the principle of setting up a European Treasury is agreed upon," he said, "the European Council could authorize the ECB to step into the breach, indemnifying the ECB in advance against risks to its solvency. That is the only way to forestall a possible financial meltdown and another Great Depression."
He also scolded Germany for its tough stance against protecting weaker euro zone states, saying, "The German public still thinks that it has a choice about whether to support the euro or to abandon it. That is a mistake. The euro exists and the assets and liabilities of the financial system are so intermingled on the basis of a common currency that a breakdown of the euro would cause a meltdown beyond the capacity of the authorities to contain. The longer it takes for the German public to realize this, the heavier the price they and the rest of the world will have to pay."