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In an editorial penned for the Financial Times, billionaire investing icon George Soros said that while Greece could be salvaged by a makeshift financial-rescue package, bigger problems lie ahead for the euro.
According to weekend news reports, Germany's finance ministry has sketched out a plan under which countries using the euro currency will provide between $27 billion and $33.7 billion (20 billion and 25 billion euros) in aid for Greece, which is teetering on the brink of default.
Soros says that "a makeshift assistance should be enough for Greece," but warns that the growing threats posed by other debt-laden, euro-member countries – particularly Spain, Italy, Portugal and Ireland – could prove overwhelming.
"Together they constitute too large of a portion of euroland to be helped in this way," Soros said. "The survival of Greece would still leave the future of the euro in question. Even if it handles the current crisis, what about the next one?"
This isn't the first time during the ongoing financial crisis that the situation was slated to worsen before it improved. Almost exactly one year ago, while speaking at a Columbia University dinner, Soros warned – correctly — that the world financial system had effectively disintegrated, meaning the end of the economic misery was nowhere in sight.
In fact, Soros actually compared the financial crisis to the breakup of the Soviet Union, and said that the whipsaw effects of the crisis would prove to be more severe than the Great Depression.
"We witnessed the collapse of the financial system," Soros told the audience during his February 2009 speech. "It was placed on life support, and it's still on life support. There's no sign that we are anywhere near a bottom."
Soros cemented his reputation as an investing icon with The Quantum Fund, a hedge fund that's often described as the first real global investment fund, which he and Jim Rogers founded in 1970. Over the next decade, Quantum gained 4,200%, while the Standard & Poor's 500 Index climbed about 50%.
Gloom in Greece
Greece's deficit swelled to 12.7% of gross domestic product (GDP) in 2009, way above the European Union's 3% cap. Greece's government leaders have pledged to reduce that nation's budget deficit to 8.7% in 2010, but that goal won't be easily met.
Flights were grounded and schools shuttered across Greece yesterday (Wednesday), as civil servants and private-sector workers went on a nationwide strike to protest EU-backed austerity measures. Police employed tear gas to quell uprisings involving 15,000-25,000 protestors in Athens, The FT reported.
According to Soros, the rescue plan for Greece has a key weakness: The euro is fundamentally flawed because there is no Treasury agency backing it.
"When the financial system is in danger of collapsing, the central bank can provide liquidity, but only a Treasury can deal with problems of solvency," he said. "This is a well-known fact that should have been clear to everyone involved in the creation of the euro."
For that reason a well-organized eurobond market is desirable – as are more-intrusive monitoring and institutional arrangements for conditional assistance, Soros said.
News and Related Story Links:
- Financial Times:
The euro will face bigger tests than Greece - Financial Times:
Greeks take to the streets against austerity plans - Wikipedia:
George Soros - Money Morning News Analysis:
Super-Investor George Soros the Latest to Predict the Worst is Yet to Come - Money Morning News Analysis:
Jim Rogers: $700 Billion Banking Bailout is 'Horrible Economics'
I have never had much faith in EURO because it involves too many countries in any decision and enlarging the original group has just diluted the fiscally responsible with those who never have been fiscally or politically well run . Many of them have historical grudges and behave like a bunch of jealous siblings. Unwinding is probably out of the question at this time and would only create more uncertanty in what is already a serious global financial situation. Having all currencies backed by either a gold or silver standard would be the ultimate guarantee that might calm all markets BUT I cannot imagine that happening right now. I agree with Soros .The whole financial system is rotten and all the governments and banks are just playing monopoly with virtual paper money that has very little true value anymore. I am old enough to remember papering a washroom with Deuchmarks after the last world war…maybe that is where the U.S. dollar and a few other currencies are headed now. Wish I had a better suggestion.
Until there is some kind of equality through out the EU how can anyone expect the EURO to have
a higher value. For instance, salaries vary to much between countries. Benifits for self-employed
people who are forced to close their businesses are non-existant in Spain where I live. Across the
EU we need to get more people back to work. Cost of living increases daily. There are speculations that Spain will need serious financial help to meet their retirement pension payments as soon as the
middle of this year. Many of the EU countries do not count un-employed self employed in their
Data so what are the real figures, and as a result protesting will occur in more counties! I also agree with Soros
The eurozone is about to blow its own trumpet off, I completely agree with Soros. The BIS
is propping up the value of the euro in a myriad of methodical madness.
Adolf hitlers dreams of running the world started with the creation of the Bank of International Settlement. Genious or maniac is closely linked, the parrasites want to control all the worlds wealth.
Zurich Financial Services paranoia with global domination of every potential buck, fraudulent and worse caused its own destruction.
The euro cannot hope to solve its own looming depts, let alone the depts of ZFS still to be exposed, and many are in the EU.
It would appear that the USD offers a rosier picture than the Euro at an opportune time, as I'm sure DC and WS are tickled with the cashflow into the US of late. It seems to be primarily a currency event though, as the volume in our stock markets ( and USTauctions) has been tepid at best lately. This might suggest that mostly smart money is involved.
Seems like there were announcements of cooperation accords among Euro and US players early on in the credit crisis, and I suspect coordinated soverign influencing of the markets goes a long way toward explaining the current "stability" in markets, in cooperation with the "talking head's" announcements.
Just imagine if things do start to crumble with one or two of the PIIGS, and then maybe a third, or maybe Great Britian?
That would get wealth moving in a big way, and who benefits in the short term from that happening? So it appears we all generally agree with Soros, but keep in mind that what we are debating is probably a few moves behind the main players.
The real goal of the Euro was as a first step toward European Union. This would be an unambiguously good thing for the US, for Europe and for the world. Outside of the US, Europe represents a large majority of the rest of the worlds economy – China is only barely larger than Germany. Europe has relied on US hegemony for military stability, and have tried to avoid the tax of the dollars 'privilege' by the creation of the Euro without the rest of the US baggage.
The creation of a political union took hundreds of years in the US, and was only finalized in the decades after the Civil War. It does not appear that Germany wants much of the great European experiment. Despite the overreach of our federal government, lets hope Germany blinks. Our grandchildren will live in a better world if there is a balance of three great powers a hundred years from now.
The costs are small in the perspective of time.
It would appear that Soros has gone short on the Euro and long on gold before many others. It looks like this can be either a prediction or strategy that has come into being lately since the Euro has declined in value and gold has gone up in value recently. Did it happen because he said it was going to happen or did it happen because it was going to happen anyways? If investors flee from any investment in fear of it collapsing then it can collapse because support and confidence in it has been lost and more are selling than buying it so that the investment loses value. Those that have been able to see ahead and/or have more information about something before others can usually end up benefiting but they also need can make others think that they are right. Soros has made others see what he sees or saw in the Euro but probably did it by giving out information only after he may be well positioned to deal with it.
Others then seeing what he saw would follow suit afterwards resulting in investors fleeing the Euro and driving it down while fleeing to gold and driving it up. Anyone who can command free media attention by his status also can have a captive audience of sorts for propaganda or
trying to sell what they have so that their influence can be great. The difference between the success and failure of many businesses is free news or media exposure of their business or
products that can launch them out there such as is hoped through issuing press releases.