The Tragedy of the European Union by George Soros

Author:George Soros [Soros, George; Schmitz, Gregor Peter]
Language: eng
Format: epub
ISBN: 9781610394222
Publisher: PublicAffairs

PART2

December 2013

Fourth Interview: Future

GREGOR PETER SCHMITZ: We talked a lot about the crisis of the European Union. With regard to the euro, though, isn’t the worst over?

GEORGE SOROS: If you mean that the euro is here to stay, you are right. That was confirmed by the German elections, where the subject was hardly discussed, and by the coalition negotiations, where it was relegated to Subcommittee 2A. Chancellor Merkel is satisfied with the way she handled the crisis and so is the German public. They reelected her with an increased majority. She has always done the absolute minimum necessary to preserve the euro. This has earned her the allegiance of both the pro-Europeans and those who count on her to protect German national interests. That is no mean feat.

So the euro is here to stay, and the arrangements that evolved in response to the crisis have become established as the new order governing the eurozone. This confirms my worst fears. It’s the nightmare I’ve been talking about, and there is little chance we’ll wake up soon. As I keep saying, Germany is the only country in a position to change the prevailing order. No debtor country can challenge it; any that might try would be immediately punished by the financial markets and the European authorities.

SCHMITZ: If you said that to Germans, they would say: Well, we have already evolved a lot. We are more generous now and have modified our policy of austerity.

SOROS: I acknowledge that Germany has stopped pushing the debtor countries under water. They are getting a little bit of oxygen now and are beginning to breathe. Some, particularly Italy, are still declining, but at a greatly diminished pace. This has given a lift to the financial markets because the economies are hitting bottom and that almost automatically brings about a rebound.

But the prospect of a long period of stagnation has not been removed. There is widespread agreement among all the financial institutions and experts, with the conspicuous exception of Germany, that the eurozone is threatened by deflation. The consensus includes the IMF, the US Treasury, and the ECB, excluding the Bundesbank and its allies. Opposition from the Bundesbank will prevent the ECB from successfully overcoming the deflationary pressures the way other central banks have done, notably the Federal Reserve. That’s why the eurozone is facing a long period of stagnation. And that prospect has set in motion a negative political dynamic. Anybody who finds the prevailing arrangements intolerable is pushed into an anti-European posture. So I expect the process of disintegration to gather momentum. During the acute phase of the euro crisis, we had one financial crisis after another. From now on I expect a series of political rather than financial crises, although the latter cannot be excluded.

SCHMITZ: You say that current arrangements are intolerable. What exactly needs to change? What needs to be reformed?

SOROS: At the height of the euro crisis, Germany agreed to a number of systemic reforms, the most important of which was a banking union.

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