George Soros has been a major advocate of Eurobonds, predicting the end of the Eurozone if dramatic action wasn’t taken and even suggesting that Germany should drop the euro if it wasn’t willing to back his ideas. Now that the euro seems to have survived the sovereign debt crisis, Soros is releasing a new book (The Tragedy of the European Union) arguing that the creditor-debtor split in Europe is being transformed into permanent political inequality.
“The euro crisis has already transformed the European Union from what it was originally intended to something radically different. The original intention was to form a union of equal and sovereign states that believe and are dedicated to principles of an open society and were willing to sacrifice some of their sovereignty for the common good,” Soros said at a recent talk at the London School of Economics.
Now he believes the core/periphery split gives creditor countries a great deal of political influence in debtor countries. “The relationship between them is neither voluntary nor equal,” says Soros.
Germany not to blame, but still responsible: Soros
This is a fairly optimistic view of the formation of the EU and the eurozone, assigning concern for humanity and the commonweal to what most people would assume is the perceived alignment of interests. It’s certainly easier to understand each country’s position (like Germany not wanting to strengthen the Euro too much) if you assume that it is promoting its own interests.
Soros says that his remarks about Germany have been misunderstood and that he doesn’t blame Germany for the crisis or the financial difficulty that the EU periphery has been facing in recent years, but that he thinks Germany is responsible to deal with the situation since it is the de facto financial leader of the Eurozone.
EU banking system not an efficient transmission mechanism: Soros
To some extent, Soros is going over old ground. He has challenged Germany’s reaction to the euro crisis from the beginning, and now that his financial predictions haven’t played out (or at least aren’t as bad as he had predicted) he is saying that the same decisions will have serious political consequences.
But just because he has added political inequality to his list of consequences doesn’t mean he has necessarily abandoned his old financial arguments.
“The ECB has been very successful at pumping money into the banking system, but the money doesn’t go from the banking system into the real economy. The banking system is currently not functioning as an efficient transmission mechanism,” says Soros.