Soros: Germany Should Lead Way Out of Crisis or Leave the Eurozone

Sunday, 09 Sep 2012 08:44 PM

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Germany should take control of the eurozone's efforts to firewall and extinguish its debt crisis or abandon the single currency, said billionaire financier George Soros.

Germany must avoid thwarting remedies on the grounds they may cause inflation or ask their taxpayers to shoulder more debt from other European countries.

Berlin must stop prioritizing austerity measures over growth, as harsh belt-tightening policies exacerbate recessions and benefit neither creditor nor debtor nations.

Instead, the country should be more proactive and take the lead to find ways to get periphery economies such as those in Greece and Spain moving faster along the road to recovery.

Editor’s Note: General Hayden Leads URGENT Summit on Nuclear Iran – Watch Here

Otherwise, it should be the one that leaves the currency bloc and let the indebted countries take full control of their respective recoveries.

"The Bundesbank remains committed to an outmoded monetary doctrine rooted in Germany’s traumatic experience with inflation," Soros wrote in a piece appearing in Project Syndicate. "As a result, it recognizes only inflation as a threat to stability, and ignores deflation, which is the real threat today. Moreover, Germany’s insistence on austerity for debtor countries can easily become counterproductive by increasing the debt ratio as GDP falls," Soros wrote.

The influential Bundesbank is the German central bank.

With Germany refusing to take the lead in recovery efforts, a two-tiered economy will develop, which would fuel tensions and resent among periphery countries.

Germany must steer the continent from such a fate.

"Germany, as the largest creditor country, is in charge, but refuses to take on additional liabilities; as a result, every opportunity to resolve the crisis has been missed. The crisis spread from Greece to other deficit countries, eventually calling into question the euro’s very survival," Soros wrote.

"Since a breakup of the euro would cause immense damage, Germany always does the minimum necessary to hold it together."

Germany will incur losses helping other countries out, though a collapse of the eurozone would serve as a much worse alternative.

Reforms in need of German leadership include "implementing the proposed European banking union; establishing a more or less level playing field between debtor and creditor countries by establishing a Debt Reduction Fund, and eventually converting all debt into Eurobonds; and aiming at nominal GDP growth of up to 5 percent, so that Europe could grow its way out of excessive indebtedness," Soros wrote.

"Whether Germany decides to lead or leave, either alternative would be better than creating an unsustainable two-tier Europe."

Periphery countries like Italy and Spain scored a major victory last week after European Central Bank President Mario Draghi unveiled a new bond-buying program, known as Outright Monetary Transactions, which will see the ECB buying sovereign debt carrying maturities of up to three years.

The project, which drew resistance among Germany Bundesbank officials, aims to lower borrowing costs in countries like Spain.

"We will have a fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability," Draghi said, according to the Associated Press.

Still, lasting recovery remains far along the horizon.

"We expect the euro area economy to recover only very gradually," Draghi said.

Editor’s Note: General Hayden Leads URGENT Summit on Nuclear Iran – Watch Here

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