Soros lays blame for Europe’s crisis partly at Germany’s feet

George Soros has criticised Germany as “bearing a major of responsibility” for the financial crisis enveloping much of Europe, treating it only as a debt problem and so putting “all the burden of adjustment on the debtor countries”.

Writing in the Financial Times, the veteran investor said Germany’s blaming the crisis on countries that lost competitiveness and run up debts is “a highly biased view”.

It is a debt, currency, and banking crisis, not just about borrowing levels.

He said putting all the burden on debtor countries to solve it smacked of 1982, when banks loaned debtors enough to cover their debts, until the banks had saved enough to swap bad loans for Brady bonds – causing “a lost decade” for Latin America.

“Indeed, the current arrangements penalise the debtor countries even more than in the 1980s because they will have to pay hefty risk premiums after 2013,” Soros wrote in the newspaper.

By bailing out banks now, but then bailing sovereign debt holders in from 2013, “the European Union will suffer something worse than a lost decade, it will endure a chronic divergence in which surplus countries forge ahead and deficit countries are dragged down by the burden of their accumulated debt.”

He wrote even Spain, which came into the current crisis with lower debt ratios than Germany’s, could be caught up.

The solution to the euro crisis being planned would “set in stone a two-speed Europe” and “generate resentments that will endanger the EU’s political cohesion”.

The European Financial Stability Facility, while retaining its present size, must be reorganised to rescue banking systems not just member states, he said, so sovereign debt could be reorganised without triggering a banking crisis at the same time.

David Walker

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