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George Soros predicts euro will survive but that 'German empire' looms

June 04, 2012|By Tiffany Hsu
  • Financier George Soros mused on how to save Europe in a much-discussed speech this weekend.
Financier George Soros mused on how to save Europe in a much-discussed speech… (Manish Swarup / Associated…)

Several days after the fact, George Soros' speech describing the euro crisis as a bubble still has economic eggheads in a tizzy of admiration.

The address -- delivered by the financier in Trento, Italy, over the weekend -- has been praised as an "absolute dynamo" by Business Insider's Joe Weisenthal. Felix Salmon at Reuters said "it’s really good." Twitter users have referred to the talk as "quietly terrifying," "extraordinary" and "probably the most important thing you're going to read all month."

What it is not is short -- there are more than 4,000 words, all of them available here. But nestled amid Soros' long and fearsome prophesies are small gems, including a shout-out to London School of Economics philosopher Karl Popper.

He's the one who believed that "people’s interpretation of reality never quite corresponds to reality itself."

That said, Soros looks back all the way to the foundations of economic theory to reflect on the causes of the Eurozone boom-and-bust. 

He concludes that the European Union and the Maastricht Treaty were based on fundamentally flawed but "immensely attractive" ideals. The main problem? That although a monetary union was created, an accompanying political one wasn’t.

And Germany, struggling at the outset with the euro, took on structural reforms and boosted its competitiveness. Meanwhile, many other Eurozone members took advantage of cheap credit, demonstrating a lack of discipline for which they are now suffering.

Soros also plays oracle, predicting that the looming Greek election will go narrowly in favor of bailout supports. But without "extraordinary policy measures," he said, the Eurozone could wind up navigating the same "lost decade" that Latin America endured in the 1980s.

How long does Soros think the Eurozone has to deal with its issues to avoid implosion? Three months.

And so, with its political stability and export strength at risk, Germany will likely do everything in its power to preserve the euro, Soros said. Those concessions will likely create "a German empire" with a widening gulf between credit countries and the periphery of permanently depressed debtors that they support.

"I believe most of us would find that objectionable, but I have a great deal of sympathy with Germany in its present predicament," Soros said. "We need to do whatever we can to convince Germany to show leadership and preserve the European Union as the fantastic object that it used to be. The future of Europe depends on it."

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