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Monday, January 28, 2013

EURO: The Beginning of the End? Soros says, Yes

George Soros warns Davos: The Euro will destroy the European Union (Quotes are from Soros’ web site and the analysis is partially adapted from that same source)

The European currency was saved this past summer, but problems in recent years have seriously affected the Euro area economy and created dangerous political imbalances therefore 2013 will be a very turbulent year, warned billionaire George Soros, who attended the World Economic Forum held in Davos .

Though retired from being a hedge-funds manager, Soros is a keen investor who and expert on world currencies who defeated the wrongly valued British pound in 1992.

According to Soros latest view of the Euro, the European Central Bank (ECB) intervention in late 2012 to save the single currency came only after German Chancellor Angela Merkel  gave permission to do the minimum necessary.

The outcome of these interventions is a Eurozone split into a) creditor countries  such Germany, the Netherlands and the Scandinavians and b) the debtor countries   such as southern (such as Europe Greece, Italy, Spain, Portugal, and Ireland) and beyond into Central and Eastern Europe.

"Lenders control everything and, unfortunately, the are arguing for a policy of austerity that is counterproductive" for the development of the periphery, said the billionaire who was quoted by the Daily Beast.  While the ECB and International Monetary Fund ( IMF ) completed spending cuts and tax hikes as a condition for providing financial support "excessive debt can not be reduced by reducing the gross national product," said Soros. Thus, the billionaire believes that austerity continues to push the Euro area toward recession, which will exacerbate political tensions. 

Soros knows the obvious—if consumers have too little to spend, national economies cannot grow.

Now, the danger is that the European Union, a voluntary association of equal states, is going to divide the system into a "center", and a "periphery," Soros warns. The Center would control the public policies of the EU, and the poorer peripheral countries would always find a lower position of subordination. Moreover, problems begin to emerge between the European countries and other developed countries.  There is already an "early war of coins, "said Soros. (He likened the current situation to the aftermath of World War II, when the U.S. and other developed countries controlled the flow of capital and imposed developing countries to be subordinated to very harsh fiscal discipline.)

The political problem in Europe is that creditor countries especially Germany, are in charge, and every other member of the EU is playing a smaller role in developing the union. Virtually nothing can be proposed at European level without “Germany’s agreement," say Soros. 

Germany’s financial solution to the problem is not acceptable to the peripheral countries, which, since the Euro entered the scene on Jan 1, 1999, are no longer to devalue their own currency to be able to regain a competitive advantage vis-รก-vis Germany.

Thus “the Euro risks destroying the European Union, "Soros warned. Unlike other central banks, the ECB does not practice a relaxation of monetary policy. 

In Japan, the central bank is trying to devalue the yen to increase exports. "It is a direct challenge to Germany," Soros has said, considering that the two countries are direct competitors in exporting high quality products. "Divergences between the yen and the Euro will worsen and this will have a negative effect on the performance of Germany " said the billionaire, who pointed out that this may create a lot of tensions between Germany and Japan.

In the meantime, I surmise that Germany has vitually “enslaved” low-tech Europe by preventing it from gaining the hi-tech industry necessary to compete with Germany. Only Germany can produce at low cost the equipment needed by  the poorer countries, which are locked who into being Germany’s “controlled” customers.  

January 26, 13h

Copyrighted Olga M Lazin, 2013
Los Angeles.

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