According to billionaire George Soros, a fateful decision by Angela Merkel, chancellor of Germany, ignited the euro crisis in the wake of the Lehman Brothers default in September 2008. Now, Soros says, the joint currency hangs in the balance, and only Germany can save it.
With Merkel’s decision that debt guarantees against defaults must be given separately by euro zone countries instead of by the European Union (EU), said Soros (left) in an opinion piece that appeared Friday on Reuters, came the origin of the debt crisis. Procrastination on the part of Germany, he added, inflamed the Greek crisis and pushed contagion onto the rest of the euro zone.
While Merkel’s decision was based on an accurate reading of Germany’s mood, he continued, that mood has become more trenchant, with strong resistance to providing Europe with credit. That means that changing direction now can only be done in the midst of a crisis, and with small increments. But it must be done, said Soros, because the steps thus far taken by the euro zone as a whole are inadequate and likely to fail.
He characterized these steps as a series of half measures, beginning with the conferring of responsibility on the European Financial Stability Fund (EFSF) for solvency problems. But the EFSF lacks both adequate size and the authority to act through a European body to deal with bank solvency, and will not in any case have jurisdiction over these things until September. By then the crisis already raging through Europe could reach a climax, Soros fears.
And as if that were not bad enough, Soros pointed out that failure to act on interest rates for countries not yet in bailout programs could lead to those countries’ refusal to participate in the latest Greek bailout—which could lead to failure of the rescue package, already viewed as unlikely to succeed in its objective.
A disorderly default or the exit of any country, even a small one, from the euro zone, he said, “would precipitate a banking crisis comparable to the one that caused the Great Depression.” The time to debate on whether the euro should exist is long past, he added, “since its collapse would cause incalculable losses to the banking system.”