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Germany should back growth or leave euro-Soros

Germany should leave the euro zone if it is not prepared to take a more decisive lead in helping the euro zone's weaker nations escape a spiral of increasing indebtedness and economic decline, veteran financier George Soros said on Saturday.

Soros said Europe faced a prolonged depression and an acrimonious end to the European unification project if steps were not taken to help its southern nations grow their way out of the debt crisis by collectively assuming some of their debt and relaxing its German-led insistence on austerity.

"Germany should either lead in developing a growth policy, political union and burden-sharing, accept the cost of leadership, or leave through an amicable arrangement," Soros said in an interview with Reuters television in Vienna.

Soros, a liberal philanthropist who rose to fame as an investor on a big bet against the British pound in 1992, said a Germany-free euro zone could be more competitive in exports and service its debts more cheaply with a weaker, France-led "Latin" euro.

Otherwise, Germany should step up and accept its de-facto leadership role, and abandon its Bundesbank-led ideological opposition to central bank financing of states and strict adherence to a goal of inflation close to but below 2 percent.

Berlin has given its backing to the European Central Bank's new bond-buying program to lower struggling euro zone countries' borrowing costs, which Germany's central bank has criticized.

Soros said the plan would likely buy Europe "a longer period than previous measures that were taken".

"It's a more dramatic move," he added, but he predicted Spain and Italy would not apply to be part of the program.

What Europe needed more was some form of common euro zone bond, which was currently not acceptable to Germany.

"Secondly it needs to be able to grow, you need a growth program, and that is again not what Germany is imposing on Europe," Soros said.

"Lost Decade"

Soros, 82, drew a parallel with the financial crisis of 1982, when lenders protected the international banking system by lending debtor countries just enough to service their debts, pushing them into severe austerity programs that led to depression.

"It was the lost decade for Latin America and something very similar is happening now in the euro situation, where Germany is actually playing the same role within the euro as the IMF did within the global financial system," Soros said.

"This policy is pushing Europe into a depression which is going to last five or 10 years," Soros said.

He said this would compound slowing global economic growth.

"I think this whole process is reinforcing the deflationary tendencies in the world, so Germany itself is slowing down and will stop growing," he said.

"China is actually destined for a hard landing, which will reinforce the global tendency towards depression."

Elaborating on an essay published on Saturday on the New York Review of Books website, Soros said such a scenario put at risk not only the euro currency but the whole European Union, ending a decades-long project to unite the continent.

He predicted Germany would not pressure Greece to leave the European Union but would continue to provide just enough support for it to service its debts, while insisting it persist with a harsh austerity program.

"I think that Germany is going to take a hard line on Greece but will not go as far as to push Greece out of the euro or out of the European Union," he said.

He added that France might have difficulties in accepting a role as the leader of a "Latin" euro.

"France has done relatively little in the form of structural and fiscal reforms, and it currently enjoys a low risk premium because it's closely allied with Germany," he said.

"If that link were broken, France would have probably a higher risk premium than Italy."

Soros will give a speech entitled "The Tragedy of the European Union" in Berlin on Monday.

Soros's Cayman Islands-based Soros Fund Management has around $25 billion in assets. Soros himself is worth about $20 billion, according to Forbes.

[Source: Reuters, Vienna, 08Sep12]

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