George Soros is usually thought of as the man whose hedge fund broke the Bank of England with a $10 billion bet that the pound would lose its peg to other European currencies.
These days, the billionaire investor is seeking to save a currency union, not bury it. In “Financial Turmoil in Europe and the United States,” he laments that the euro has become an “existential crisis” for Europe and places much of the blame on one person: Angela Merkel.
The German chancellor’s insistence on fiscal discipline amid high unemployment threatens to hurl the euro region into “a vicious deflationary debt trap,” he writes in this collection of previously published essays. His warning brings a timely reminder that Greece’s latest bailout won’t quell the economic and political forces pulling the Old World apart.
“Germany cannot be blamed for wanting a strong currency and a balanced budget,” Soros says. “But it can be blamed for imposing its predilection on other countries that have different needs and preferences — like Procrustes, who forced other people to lie in his bed and stretched them or cut off their legs to make them fit.”
The articles gathered here were written mostly for the Financial Times and the New York Review of Books. Taken together, they constitute what Soros calls “a real-time experiment,” his attempt over the past four years to influence policies on the fly. The authorities didn’t follow his advice, he says, though he surely helped shape the debate.
‘Failed Philosopher’
Soros has called himself “a failed philosopher.” He’s actually a rarer species: A pathologist of market linkages and psychology — a man who quickly grasps how an unhealthy growth of credit here will morph into a morbid bubble there. His diagnoses are clear, whether he’s describing commodity index investing or former U.S. Treasury Secretary Henry Paulson’s flawed plan to purchase distressed mortgage-backed securities.
He tends to propose treatments that his patients reject. A prime example is his call to transform the European Financial Stability Facility into a common treasury for the nations that share the euro. That’s a nonstarter politically, as is his sensible pitch for joint euro bonds.
European leaders have also rejected a subtler Soros proposal: to have the EFSF insure the European Central Bank against the solvency risk on ECB purchases of new Italian or Spanish bonds from commercial banks. The ECB instead initiated longer-term refinancing operations, which offer lenders three- year loans at 1 percent annual interest.
