Soros: Euro will survive, Germany will do what it takes...

HAMISH_MCTAVISH

"The likelihood is that the euro will survive because a breakup would be devastating not only for the periphery but also for Germany.

It would leave Germany with large unenforceable claims against the periphery countries.

The Bundesbank alone will have over a trillion euros of claims arising out of Target2 by the end of this year, in addition to all the intergovernmental obligations.

And a return to the Deutschemark would likely price Germany out of its export markets – not to mention the political consequences.

So Germany is likely to do what is necessary to preserve the euro – but nothing more."

The article then goes on to note....

It’s well understood that Germany has to subsidize the euro zone if the euro is to survive.

It’s less well understood that the currency zone itself is an ongoing subsidy to Germany.

It keeps their currency cheap and their exports booming.

It keeps the other countries in the euro from defaulting on their debts, many of which are owed to German financial institutions.

So if the euro breaks up, Germany is likely to lose one of the main drivers of their economy — cheap exports — and face a financial crisis.

And that’s in addition to the political consequences, and the likely global recession, and the shame of having failed the grand dream of a united Europe alive.

http://www.washingtonpost.com/blogs/ezra-klein/post/why-george-soros-thinks-the-euro-will-survive/2012/06/04/gJQAu57GDV_blog.html?tid=ts_biz

ILW

Nothing about who he expects to stay within the Euro though.

TDPIX

I think that Greece will leave, and THEN Germany will support Eurobonds and 'quantitative easing'.

HAMISH_MCTAVISH

ILW wrote: »

Nothing about who he expects to stay within the Euro though.

Well he's pretty clear that it won't only be the "strong" countries, and that it will include the "periphery".

HAMISH_MCTAVISH

TDPIX wrote: »

I think that Greece will leave, and THEN Germany will support Eurobonds and 'quantitative easing'.

Germany cannot afford to have the Eurozone break up and the PIIGS default on their debt to German banks, nor to lose it's competitive advantage from a weak currency, that much is clear.

What is less clear is whether a Grexit can be contained and stopped there, or whether other dominoes would then fall, leading to the scenario of more periphery countries leaving. Which is precisely what Germany cannot afford to happen.

Mrs_Bones

He seems to have changed his mind a bit since that article was printed on the 6th of April. This one is from yesterday.

But he said the German economy would begin to weaken in the autumn, making it much harder for Chancellor Angela Merkel to provide further support.
He said leaders did not understand "the nature of the crisis".
"The crisis is likely to come to a climax in the [autumn]. By that time, the German economy will also be weakening, so that Chancellor Merkel will find it even more difficult than today to persuade the German public to accept any additional European responsibilities.

He seems to think they only have around 3 months to save the Euro now. Which seeing as he also says he does not think the leaders understand the nature of the crisis and that they have so far applied the wrong remedy is rather worrying. Will they find any better understanding or seek to apply a different remedy in the next 3 months?

HAMISH_MCTAVISH

Mrs_Bones wrote: »

He seems to have changed his mind a bit since that article was printed on the 6th of April.

No, I don't think he has.

From the article you referenced.....

He said leaders did not understand "the nature of the crisis".

He said that while European leaders were focusing on debt levels, the crisis was "more of a banking problem and a problem of competitiveness".

For this reason, he said, they had "applied the wrong remedy".

"You cannot reduce the debt burden by shrinking the economy, only by growing your way out of it," he added.

Mr Soros, speaking at a conference in Italy, was referring to the drastic austerity measures that have been implemented across Europe, measures that are now being questioned by a growing number of politicians and commentators.

Without policies to boost growth, which would enable governments to raise revenue to pay down debt, Mr Soros said time was running out for the euro.

Soros saying what many others have been saying lately.

As for the 3 months thing.

"The crisis is likely to come to a climax in the [autumn]. By that time, the German economy will also be weakening, so that Chancellor Merkel will find it even more difficult than today to persuade the German public to accept any additional European responsibilities.

"That is what creates a three-month window."

That ties in nicely with his previous thoughts on the subject, that Germany cannot afford to have the Eurozone meltdown, as it will weaken Germany economically as well.

He's saying they have 3 months to avoid it happening.

CLAPTON

what seems rarely asked is why anyone wants the EURO to survive

what benefits accrue to the poorer people by staying in the euro?

the break up may be painful but then the present is painful

one doesn't seem to hear much about the terrible consequences of the demise of soviet single currency (lots of other problems about the demise of their empire but not about the currency)

The_White_Horse

so, it's good for germany, but is it good for everyone else???? not really. so everyone else may say "up yours" to germany.

michaels

Surely though the austerity thing is just Germany playing a slightly longer game. Yes they know they will have to support the debtor nations to avoid the pain of writing off the debt but first they are insisting on the 'sustainability pact' so that they can persuade their voters that when they do sign up for Euro bonds (however named and defined) they can say 'Yes we are guaranteeing their current debts' but we have cleverly already put in place rules to ensure we are not also paying for them to be profligate ni future on the back of our guarantees.

(Of course it doesn't work like that and there would be leakage once the guarantee has been given but it is a political sale that is required)

HAMISH_MCTAVISH wrote: »

No, I don't think he has.

From the article you referenced.....



Soros saying what many others have been saying lately.

As for the 3 months thing.



That ties in nicely with his previous thoughts on the subject, that Germany cannot afford to have the Eurozone meltdown, as it will weaken Germany economically as well.

He's saying they have 3 months to avoid it happening.

Graham_Devon

"Germany will do what it takes" is the scariest part.

I'm not thinking war or anything like that here, although thats certainly an unfortunate possibility of a large fallout. But it really does appear Germany still want to dictate to others.

The problem is, they are getting ever more frustrated that other countries won't toe the line. "Germany doing what it takes" could be nice for Germany, but disasterous for others, and not something we should be actively touting as a good thing.

The loss of Sarkozy willing to toe the line will have changed the landscape somewhat.