George Soros, The Tragedy of the European Union, Berlin, Germany, September 10, 2012

thank you very much for coming uh my purpose in coming to Berlin is to put before you a lasting solution to the seemingly intractable problems connected with the Euro that sounds like Mission Impossible after all the problems have been with us for a number of years and they have grown worse rather than getting better we've been drifting from crisis to crisis and both the economic and the political situation keeps deteriorating it's been a thoroughly debilitating process accompanied by a lot of suffering not here in Germany but in the so-called periphery countries and generating a lot of hostility anger and resentment both here at the core and in the periphery we reached a point where the survival of the Euro could no longer be taken for granted and there is a real danger that the Euro will destroy the European Union itself exactly because of its division into a core and the periphery the Euro crisis has turned into a veritable nightmare but nightmares can be escaped you can wake up and realize that all the seemingly insoluble quandaries are creatures of your own imagination and that's the message I should like to deliver let me say a few words about myself you may know me as a successful Speculator a a hedge fund manager now retired who knows a thing or two about financial markets but I'm also a fervent believer in the European Union as an embodiment of an open society and uh I don't want the euro to destroy it uh I have a network of Foundations uh active in various parts of the world and I can testify from personal experience that the world really needs a strong and prosperous Europe devoted to the principles of open Society the traumatic experience of my life was the German occupation of Hungary in 1944 I survived it because my father taught me at an early age that it's better to confront harsh reality than to possibly submit to it I realize that in my analysis I am quite critical of German policies but please don't take it a Miss I'm equally critical of others including the financial markets as an earth while disciple of car poer I have developed a philosophy based on the recognition that our understanding of the world in which we live is inherently imperfect and our misconceptions play an important role in shaping the course of it history it just happens that as the largest and most successful creditor country Germany is in the driver's seat and whether you like it or not your policies largely determine the outcome of the current crisis the policy of fiscal retrenchment uh in the midst of rising unemployment is procyclical and push pushing Europe into a deeper and longer depression that's no longer a forecast it's an observation the German public doesn't yet feel it and doesn't quite believe it but it's all too real in the periphery and it will reach Germany in the next 6 months or so my message is that the looming depression is largely self infected and the night nightmare can be escaped it won't be easy the Euro crisis is extremely uh complex and complex problems don't have easy solutions I I won't repeat my analysis because you can read it on Spiegel online uh I'll just highlight the key points and then I'll bring my argument up to date in light of the impending decision of of the Constitutional Court the European Union was meant to be the embodiment of an open Society a voluntary Association of equal states that surrendered part of their sovereignty for the common good the Euro crisis is turning the European Union into into something fundamentally different the member countries are divided into two classes creditors and debtors with the creditors in charge as the strongest creditor country Germany is emerging as the hon data countries have to pay substantial risk premiums for financing the government debt and this is reflected in their cost of uh money throughout the economy to make make matters worse they are pushed into counter cyclical policies by Germany this is not the result of some evil plot but a lack of co coherent policymaking the bundus bank remains committed to an outmoded monetary doctrine that is deeply rooted in Germany's traumatic experience with inflation so the bundes bank recognizes only inflation as a as a threat to stability and ignores deflation which is the real threat today therefore Germany insists on imposing austerity on D countries and this can easily become counterproductive because a reduction in GDP automatically increases the debt ratio and and that can out outweigh the benefits of structural reforms this point has not been understood in Germany until now structural reforms worked for Germany a few years ago why should it it work for Europe now the answer is that it's it was counter cyclical when the rest of Europe enjoyed a real estate and consumption boom so that Germany could enjoy an export-led recovery but it's Pro cyclical now so that Europe is pushed into a depression the division of Europe into creditor and deor countries had brought some unintended and unexpected uh benefits for the creditors they enjoy a competitive advantage and they fa better than the DS this creates a real danger that the two-tier Europe will become permanent both human and financial resources are attracted to the center and the periphery will become permanently depressed Germany will even enjoy some relief from its demographic Problems by the immigr migration of well educated people from the Iberian Peninsula and Italy instead of less qualified gasta B from turkey or Ukraine although this was unintended some German politicians have started to figure out the advantages it has conferred on Germany and this has begun to influence their policy decisions as time passes there will be increasing grounds for blaming Germany for the policies it is imposing on Europe while the German public will feel unjustly blamed this is truly a tragedy of historic significance as in ancient Greece in in ancient Greek tragedies misconceptions and the sheer lack of understanding have unint Ed and faithful consequences in the long run a Euro Zone permanently divided is politically unacceptable the dettor are bound to revolt sooner or later if and when the Euro breaks up in dis array it will also destroy the common market and the European Union Europe will be worse off than it was when the effort to unite it began because of a legacy of mutual mistrust and hostility the later it happens the worse the ultimate result that's such a dismal prospect that it must be prevented if at all possible uh it's time to consider alternative atives that would have been inconceivable until recently because the Euro must not be allowed to destroy the European Union that puts Germany before a difficult choice either lead the Euro zone out of the looming depression towards a political union with genuine B uh burden sharing or leave the euro to its to the data countries they would find it surprisingly easy to grow their way out of their their over indebtedness if Germany didn't stand in the way since all accumulated debt is denominated in Euro it makes all the difference who remains in charge of the Euro if Germany left the Euro would depreciate the DAT countries would regain their competitiveness their debt would diminish in real terms and with the Central Bank in their control the threat of default would simply evaporate the Creditor the Creditor countries by contrast would encounter stiff competition in their home markets from the Euro area and incur losses on their claims and investments denominated denominated in Europe the ex the extent of their losses would depend on the extent of the depreciation uh therefore creditor countries would have an interest in keeping the depreciation within bounds after the initial dislocation and shock the eventual outcome would fulfill John mayard K's dream of an international currency system in which both creditors and de debtors share responsibility for maintaining stability and Europe would escape from the uh looming depression the same result could be achieved with far less cost to Germany if Germany chose to behave as a benevolent Hederman I'm happy to note that the political debate in Germany has shifted in favor of saving the Euro both the decision of the June Summit to create a banking Union and the bond buying program announced by the ECB on September 6 were Maj major steps in the right direction and both for made possible by the support of Chancellor Angela Merkel only two other steps would now be needed to achieve a la a lasting solution uh to the EUR crisis and I want to be quite specific about them first activate the death reduction fund recommended by the Chancellor's Council of economic advisors and endorsed by the social Democrats and the greens that would help create a Level Playing Field second stop imposing uh procyclical austerity measures for the duration of the recession that would save Europe from depression and we are now tantalizingly close uh to a lasting solution if only we could get these two steps uh uh accepted it's up to Germany now to decide which alternative it chooses if the German public were willing to accept the additional liabilities that the remaining two steps would entail it would be by far the best for all concerned if Germany stayed in the Euro if not it would be best if Germany and the other like minded creditor countries withdrew from the euro in a negotiated treaty uh uh because that would be necessary for an orderly uh uh separation the impending decision of the Constitutional Court May well prohibit Germany from taking taking on the additional obligations and delegations of power that the remaining two steps would involve in that case Germany would have to hold a referendum to decide whether to lead or leave either decision would be better than to allow the euro to destroy the European Union but to believe that this the recent steps uh are sufficient uh and we are on the right track is uh like uh Ling yourself to sleep and ensure the continuation of The Nightmare thank [Applause] you very good thank you very much Mr Soros for your speech uh with which uh is thought Pro thought-provoking especially here in in Berlin we heard a dramatic and uh also a passionate statement uh from a person who is profoundly worried about the future of uh one of the most exciting most um um the great some of the greatest idea of uh postwar Europe the unification a of Europe I'm very happy that we can conduct this debate to today those a truly dramatic days we had last Thursday um the announcement of Mr dragi how to save uh the Euro finally and uh in two days from now the German constitutional Court will announce the result of nights and days and nights and days of internal debates um they uh as we heard here um have a really truly difficult decision to make and is probably one of the most crucial decisions of the German constitutional Court to accept um the European stability mechanism or um to deny the rights um to um install it um or to do it but under restrictions in the next uh hour or so we will debate um I start to ask you a couple of questions and then we hope to include the audience I see um a couple of truly um professional Debaters here in the audience so um I hope for a good debate and a participation Mr Soros in short you tell the Germans um to leave or to lead um now it is pretty difficult for me as a Spiegel journalist to in a certain way sometimes take the position of a government of our government but uh I fear I sometimes have to do it and if it's only to play The Devil's Advocate by own means so many Germans let's start many Germans are um deeply troubled they're worried and they feel almost punished for unjustified reasons I remember um the late '90s when I was a correspondent in America and when everybody made fun about the Germans who are so traditional who can't come up with reforms who don't know how to start new Enterprises who don't know how to um create uh employment and so on but then in the last 10 years we saw a lot of painful reforms and uh now the people feel forced to save countries who took the gains of the last 10 years but didn't take the pain so can you understand the German anger no I really do understand it and and I I sympathize with it up to this point uh because uh Germany has in fact uh done very well and has not not uh sought a position of hegemony in in Europe in fact I would say explicitly wanted to avoid it and that is one of the reasons why it doesn't quite live up to that position which is actually a very comfortable and and desirable position to have and I I would compare the German position today to the United States position after the end of the second world war where uh it was the Victor and in the bretonwood system it became the first among equals with a certain advantages of having its currency as the international currency but then uh um the United States lived up to that responsibility with the Marshall Plan and and uh thereby uh deserve the lasting uh loyalty and and and and the friendship of all of Europe particularly Germany we hear that of often the Anglo-Saxon um world is reminding us what we had through the plan and so on after after the war but the plan put much less burden um on the Americans then um the potential negative outcome um of or let's say a failure of this of some Southern States would put on the German um economy and the German pet taxpayer so the the the percentage of the GDP of the master plan was very small but it was one and a half% and this is one of the misunderstandings because so far Germany hasn't spent anything like 1 and a half% of its GDP actually has probably benefited from the uh Divergence in in exchange in interest rates which is bigger than the the cost of all the efforts so far because it's a very significant amount you know because having negative re uh interest rates would not be the case uh if you if you didn't have the crisis but the the costs so far basically Germany has extended loans in fact at the beginning in the in the Greek case at penalty rates so it was a rescue with a penalty which is a very strange way to go about rescuing the country and in fact Germany I mean I compare the Euro crisis to the financial crisis to International banking crisis in 1982 then the IMF saved the banking system uh by losing hardship on the DAT countries uh but preserve the the banks and I think it was a similar kind of a rescue in the case of Greece because it the banking system needed to be protected so uh and if if uh Greece would have been turned around there would be no additional cost if Greece actually goes down the drain as it is in the process of doing then of course there will be a cost but if if uh If U Germany now allow the debt uh reduction fund to go ahead and it was successful it would be no cost to Germany at all and even and even if it failed it would be a cost to the ECB where Germany would have to bear its proportional cost yeah perhaps this is perhaps this is one of the the reasons why there is so much why the Germans feel so uncomfortable um they they think that they have contributed already a lot they sacrific the Mark um they paid always a little more than the other countries um to say the unification process of uh of Europe and now um they are forced to make guarantees which they don't have to pay at the moment but they forced to make it so many people in this country feel overburdened um they feel they don't they fear that there are huge amounts of uh potential or that there is a huge risk building up to them you are I recognize that and if this is really what the German public the majority feels then in fact they should leave the Euro and I think the rest of Europe should thank them for for for doing that because without Germany uh standing in the way there would be no would be remarkably easy for the data countries to uh uh convert that that into EUR bonds and they would be able to borrow their um uh Europe excluding the Euro Zone excluding um Germany actually compar favorably uh not only with the United Kingdom but with United States and Japan and therefore would be able to borrow in the international markets uh at uh comparable interest rates a it's a Charming argument but uh that I I fear it won't be that easy because um just to leave the Euro I mean we just don't want it just go right now yeah I mean we don't want to isolate ourself either so um it's more like a position that we feel that wasn't there an agreement wasn't there the agreement that the Euro was uh un introduced under this as as a succession of the Mark um guaranteed by the same principles what the bundes bank held up over the decades and made the mark so stable and so on so there was basically one Mantra um which uh was the postar mantra for the Germans that is stability stability stability and now in brist everything is risked and uh and that that is very something but you see uh the bundas bank in uh inter interprets stability only on one side namely uh fighting inflation and the danger to stability is deflation and if if only this point were understood and this is not an impossible going to understand because there are textbooks written about it so it's not a new problem this was the problem that caused the depression it was a different setting but the problem was the same it was the debate between between KES and Hayek for instance uh it was in fact resolved and basically all the central banks in the world with the exception of the bundes bank has acknowledged this and is now engaged in quite unconventional quantitative easing which may or may not work but at least so far it has worked that it has avoided uh the depression that the whole world would have sunk into if they had followed the bundes bank's approach yeah I I would would like to ask you a question and uh perhaps you can take away or put away in your mind your role as um um what you I mean which you took this evening as a promoter of European unification and so on just take your old role as Speculator would you speculate on deflation or would you speculate on inflation now right now I uh I would definitely not speculate but uh be prepared be prepared for deflation actually it creates very difficult conditions for investing and I would now be happy to see I'm not running the my fund anymore it's done by professionals but uh but it's it's there to support my foundations and I I frankly I'm adjusting uh my policy in the foundation to to perhap 5% return a year would be very satisfactory because of the deflationary pressures that are particularly uh strong and in in Europe but they are worldwide because you have had you know 25 years of this uh uh super bow and and now you have a process of deleveraging that's worldwide interesting um I would like come to come back to um to Mario dragi and the and the skeptical um Germans so um what angers many people here the most I think is um that uh dragi is now the most powerful politician in Europe as Angela Merkel but but we can that's only because Angela Merkel back dragy against against uh White okay okay but let me finish my my my thought um the the what we think what we feel is we can vote against Merkel if we don't like her policies we can vote against her but we can't vote against dragi he acts absolutely on his own I mean of course he has the whole ECB and he has all his directors and so on but he's not there is no Democratic control and that is at the moment a very crucial debate uh in Germany um can you understand how can we change that no I I fully uh agree with you and the temporary solution the stop Gap solution that we have arrived at uh is in fact deficient and I I think bitman has a valid point in saying that too much has fallen to the ECB the central bank because you lack a fiscal Authority a political Authority uh and I I argue that you actually would need to form such a fiscal Authority uh because the fiscal Authority Act it in uh uh in cooperation with the central bank would constitute a complete currency that's the missing element now uh it's it's evolving because the ESN uh the fund is in a way the the the beginning of a fiscal Authority but it doesn't really act like that because because every decision has to be approved by every Parliament or every Parliament that insists on it as the Germans do and therefore it's very unwieldy and cannot really respond to the pressures put on it by the markets it's inadequate yeah and and the the Euro was on the verge of collapsing a couple of weeks ago when the the risk premium on on Spanish bonds went over 7% and that's when uh Angela merel was determined to save the Euro uh basically backed uh Mario dragi and then Mario dragi then made the most of this opportunity um and that that's how you have the bond buying program uh which has worked as and is going to work as a stop stop Gap but at the same time it's actually a step towards making uh uh the uh the uh two-tier Europe a a legal uh binging it into legal existence by insist think that to activate the bond buying program you have to uh uh make an agreement with the efsf and its successor which is controlled by Germany because the esm will have 85% majority requirement and Germany has 27% of the votes but what we see at the moment is a debate within the ECB during the last days um um how um close the connection between the actions of the EB how close the connection between the actions of the EB and the esm has to be I mean is a country who is asking for Bond buying by the EDB does that country has to be has to have asked the E the esm for help before or not that is unclear at the moment as we hear from the ECB I mean so it seems it seems that dragi is taking all the power no no I I I I think this is clear from the Declaration of the presentation by dragi on September 6 that it's conditional on on the EFS program that I think it's one of the clear decisions that were that were announced and uh I can also see that in some ways it's a Justified decision because otherwise everybody is very worried about the moral hazard and uh you know Monty might might agree uh or behave correctly but if uh you will have elections next year and if bone comes back in Italy uh what happens so so you do need that's why you need uh um uh fiscal Authority the debt reduction fund and and and uh an an effective uh way of punishing a a country that disobeys which is very simple if you have a the de Redemption fund because if you uh uh misbehave the Redemption fund just charges more than than its cost of money puts in a penalty and once you do that uh uh the government is liable to fall yeah but but that's exactly the nightmare of many people here the nightmare um bison Le Italy um which uh gets uh kind of unconditional or or little controlled funding by the EB to to to um basically continue a more or less populistic politic financed by German taxpayers that is that is that a nightmare can we wake up from that no I think uh you you could by gradually moving towards a a uh fiscal Union and and political union you can't go there in one jump because the tendency is for increased mistrust you have to build rebuild trust and if you can't rebuild it then you have to accept that it's better to uh cut the euro in half have a a a Euro of of of debtors and have uh a dut Mark for the for the for the Creditor countries that would work uh and it would save the European Union uh it would be a big shock uh politically because uh you know it's it's uh I think that people who who uh want the uh Europe to stay together they also want the Europe to stay together so but if it's a choice between the two it's better to sacrifice the Euro than Europe you are in your essay you are arguing with the German term SCH so uh SCH means uh has a double meaning guilt and death um and the Germans have basically as you argue assed to say gave Europe to to be the benevolent heon or um to leave as you say which would be a solution which we all don't don't like to happen um but uh why why are the Germans uh guilty for uh Greek uh um for Greek corruption um for the for the easy lending of Spanish banks in a real estate bubble or for Italian inability to make their economy um more competitive where where where is the short I don't well understand that look there's no question that Greece AB abused the system although I would like to point out that the the people who abused the system and made large amounts of money have their money in Swiss or German bank accounts and they are not suffering the people uh in Greece uh were not actually the ones who who did those things but I I'd like to leave Greece aart because there clearly there's a serious sh on the part of the shoulders U um uh but you take take Spain Spain was a poster child of responsible uh uh Behavior it had a a lower significantly lower uh that ratio than Germany it it you know uh Germany broke the rules Spain lived by the rules and was actually held up as a paragon of virtue because it was more counter uh cyclical in its uh regulation of banks than other countries and nevertheless it got caught up because that's another defect of the Euro that it was only uh prep uh designed to deal with excesses or or misbehavior by the public authorities doesn't didn't realize that the private sector is actually prone uh to instability and that was one of the of the uh mistakes that were made in designing the Euro which was not at the time specific to Europe because the United States and in Anglo-Saxon world was the originator of this uh misconception but the the the crash of 2008 has demonstrated that that theory you know of what I call Market fundamentalism that the markets are always stand towards equilibrium and ensure the best allocation of resources is actually false I I think we saw many theories fail and many economists fail and uh some journalists as well during uh during the last uh 10 years um I at this time I would like to to open the debate to um the public and uh I think we have a microphone um which we can handle around so who uh would like to start perhaps you introduce you first with your name okay I'm one of the journalists who failed my name is Peter build um actually I'm one of the journalists who didn't fail because I did not fall for the spegel line on this um I think what you do Mr Shish is to identify most clearly that um the German fear of inflation is misplaced and the German fear of deflation is if you like is is simply not there or should be far more pronounced than it is after all it was deflation in the 1930s that uh brought the world to brought Hitler to power and the world to war not the horrible inflation of the 1920s no doubt the two were linked um and my question really is is if you can't even persuade um the person that you're now speaking with that deflation is at least as big a problem how on Earth are you going to inform the German public or who is going to take the lead in persuading the German public that Spiegel really has got it wrong on this I told you that I played a little bit Devil's advocat here yeah I wasn't blaming you for being part of the government I was blaming you for being part of thank you no um um one of the promising as aspects of the situation is that uh in Germany there is still a debate and and open and an ongoing debate I hope we are part of that process and I think that I personally find the debate that I'm engaging in here uh more informed than the debates that I've been engaging in America in the past so and that is where I've been in My Hope in other words I I I think that if you put a cogent case to the German public they will hear it and and if if it really does hang up and hang together and after turning it around and looking at it from every angle actually come around to accepting it maybe I'm idealistic but that's the only hope I I I I see to stop this uh nightmare my name is lart my name is lart uh I'm just uh watching the discussion in the way as if the Germans were doing nothing the debate is running as if we are not spending any money as if we were sitting there tied like duck's ass and not doing anything but the contrary is right you know we did everything possible so far and uh I don't think it has been appreciated enough so we are not the stubborn guys doing nothing we are the guys paying all over the place thank you I I never said Germany did nothing what I said and I believe is correct Germany has always done the minimum that is necessary to hold the Euro together and the minimum is not enough and actually is more risky than doing the maximum if you did the maximum the you would have a a a a bigger potential uh uh liability but actually experience no loss whatsoever because the Eur would escape from this uh trap would have nominal growth of a few percent and the debt would shrink because there is no way that you can get out of of the debt burden by shrinking the economy you have to have growth you have can you can grow out of uh um this situation so uh um if you change your approach and this is really the it's not the fact that Germany is dictating policy that is causing the problem if the policy would be a productive policy that actually got you out of the problem then it would be fine uh um it wouldn't be ideal and hopefully uh you would improve it by in increasing the you know the political uh as you develop a political union you you reduce the inequality between the the parties and but uh um uh the trouble is that the policy is counterproductive did we I mean we hear that argument pretty often that uh if we only would have been more active in the early month or early year of the crisis then we could have saved uh um Europe from the mess we are in now is that really true I mean didn't some country needed a truly a wakeup call um you you seem to um put a lot of trust in the reason of politicians um perhaps uh we and and many people in the German public don't do that and we we think we needed a certain amount of force and pain to change um ill directed policy in some countries yeah no you look I I want to make make it quite clear that the insistence on on on structural reforms is a correct insistence conditions have changed and you need to reorient and your uh your social security system uh your labor market ET Etc so uh structural reforms are in fact necessary but they are not sufficient and structural reforms in individual countries are certainly not sufficient because there is a structural really deep fundamental defect in the construct of of the Euro and that needs to be addressed in addition to the uh structural reforms in individual countries that is my argument some more questions over there the micro the micro is here uh one short question my name is Daniel tle I have a question with regard to the estimate of the duration of the crisis uh how long would you reckon it would take a positive scenario if all the structural reforms would get into place and how long would you estimate would it take if none of these structural reforms would come to place thank you the question is was about the duration of the crisis if all the structural reforms come into place um it take how how long I mean when can we can we hope and specifically um the young people of the Southern countries when can they um start to be hopeful again because it's it's absolutely horrible for them at the moment look uh the U the international banking crisis of 1982 uh costed Latin America a last decade the collapse of the uh real estate boom in Japan uh which occurred I think some 25 years ago uh and Japan is still has has had no growth for the last 25 years uh so uh we are talking about something quite fundamental uh and it will it will take uh uh time to to get out of it but the pursuing Pro cyclical policies makes the whole bigger you dig your your own grave in a way uh and therefore it that's what extends the the the uh the crisis uh counter cyclical policies are needed now there are difficulties in introducing counter cyclical policies when there's already the countries are over indebted this is the big difference uh from the 1930s when can's argued uh that it doesn't matter what you spend the money on as long as you create demand because there was no no government that to speak of so this is a diff difficult situation and uh all I am arguing for is to to eliminate the procyclical so don't dig at the the the whole deeper and I've been following this crisis since its Inception I have written articles at each stage pointing out what could have turned it around but in instead of that the problem just kept on growing and I would never have for instance raised the issue of Germany leaving the Euro until this year because because it was not necessary to stop the the crisis so you could have stopped it with less effort uh but the the measures would have had to be convincing and that is why what the what dragi has done at at the central bank is more convincing than the previous uh steps because because he insisted on unlimited intervention uh because that's what you need to convince the markets so it's a it's a very peculiar kind of situation that you actually have to uh um come with overwhelming force and if you do you which very often has been done the intervention actually Pro results in a profit because you buy some distressed assets and sell it at a higher price later so that's what that's what is needed and now the the the problem is really big because the very existence of the Euro uh has been brought um uh into question um and I think by taking the stance uh uh that doubt has been to to a large extent U relieved so it was the recent steps are much better and the other big step is the creation of the banking Union so right now we are tantalizing close to an actual turning point but you do need the other two steps you do need to create a Level Playing Field by the debt reduction plan and you must abstain from pushing more procyclical austerity programs uh onto the countries that's those are two conditions there were more questions over there now okay my name is rard BL from the vsen shft my question is U why don't States like Greece Spain Portugal sell the state bonds to the Public Public would be happy to have two or 3% interest rates they sell it to Goldman Sach and deutche Bank who want six or 7% Belgium does this why don't the other central banks do that could you repeat the question again of no no no in in English it was Central Bank um States sell their state bonds to with an auction and the the partners of the auction are Goldman Sach Doge bank and all these banks these want uh risk risk off seven or 8% if if the states would sell their state bonds to the public to the open public public would be happy to have them because the interest rates is so minimal that they would be happy to get to to take them for two or three% so why the state sell to institutional investors and not to the general public which would be happy with lower interest I I don't think they they they are able to they would be happy to do it uh they would be happy to sell to you know China at 3% if China was willing to buy it so unfortunately that is not that is not open uh so uh you have to remember that markets don't are not always all knowing and all understanding they have their own bias and and right now there's fear and uncertainty and lack of trust and that's what reflected by the market it's a market there's a market failure as well as a failure of the regulators and the authorities and that market failure is actually as a result of the authorities mishandling the situation next question my name is uh kristofh gar um let us imagine for a second this country would decide to lead and not to leave in that case we would need a very strong leader someone who stands firmly on normative grounds who has a clear set of values and of course who's an excellent Communicator who can give a sort of narrative to the people in this country do you think we have this leader and secondly um I mean what do you think let's imagine the situation where we lead in your wording what will the French say I mean this is going to be olon nightmare isn't it so so the the issue is um you say leave or lead so if we lead we need a leader um a passionate leader who can also engage the public take who can communicate who can who is strong and can communicate so that's the one thing but the other thing is what what France say if we have such a leader so two question basically do we have a leader like that so let's is ang is Angela Merkel the leader we need at the moment um and what would France say if the Germans really start to lead well I think that actually Angela Merkel is a great uh uh Democratic leader in the sense that she pays attention to the public attitudes tries to guess the public attitudes and tries to do what she thinks the public wants sheay but but right now you would actually need a leader who would influence uh uh and convince um um the public opinion and there I'm afraid she is falling short because she doesn't herself have the vision or even the economic the understanding of finance and economics to have a clear vision of of the way out I think if she had that she would conve successfully convey it because she is a great uh um um uh tactician in uh influencing public opinion so she is she provides this kind of Democratic Leadership mean which means following um uh public opinion instead of leading it now as far as France is concerned actually uh a uh division into a Latin Euro and and and the northern block or U uh would be would fulfill the political aspirations of the French political class that as aspires to be a a a a player on the global scene um and I I recall very clearly in '89 um talking to the French of this uh these people they decided that their only chance was to tie their wagon to Germany but actually since they have not introduced the U uh necessary structural and fiscal reforms and in in some ways have also have lost competitiveness they would be ideally situated to be the leaders of the Latin block and then they would be the equal of Germany and they would have a common interest in keeping the Euro together keeping the northern and and the southern Euro not too far apart in order to uh the Northerners in order to not to suffer l loses and and the souers in order to avoid uh the excesses that would develop otherwise so have some discipline so uh it would work if you could if you could get there and the reason that it hasn't happened because it's difficult to get there because Germany I don't think will voluntarily choose uh to leave the Euro and there's nobody here really to push and it really would require Germany to realize that in the long run uh keeping the Euro together by doing the minimum instead of doing the maximum will destroy the European Union not only the Euro so you have to be aware aware of the this historic tragedy that is facing uh Europe and so there you really need real leadership to to uh get Germany to do the right thing the the historic tragedy is perhaps also that the Germans think they do already the maxim the historic tragedy here in the country is that the Germans feel they do already the maximum but indeed in your words they're doing the minimum and there's a huge misconception and um this bridge to build I think is very very difficult at the moment next question hi I'm Dave Wang uh could you speak to if you could could you talk a little bit about the role of econ economic competitiveness and how important it is long-term uh for the especially for the southern European nations and um yeah I guess just be good to speak on that when you say economic intelligence you mean in the intelligence of Economist no no no excuse me he said um let's talk about economic competitiveness compe competitiveness how important is it for the Southern States to become more competitive than they are now to finish this crisis no it is very important um and uh clearly uh exchange rate as adjustment with Germany leaving would immediately reestablish competitiveness uh in fact you uh the market could easily overshoot um because markets don't always get it right uh uh but eventually you you will settle down uh to the appropriate exchange rate and competitiveness would be resolved holding uh uh the Euro together and doing the those two additional steps would not solve the problem of competitiveness by itself and that it would be a much more longer term uh uh gradual accomplishment so from a purely economic point of view the the leave is the best solution but politically it would be a tremendous shock and a tremendous risk um uh and therefore if it were possible uh thinking mainly about the political consequences uh it would be better to hold the Europe together do you do you see public figures in Spain do you see public figures do you see politicians in uh Spain in Italy um who are willing and who have the power to make their countries more competitive because it's painful um and what we see at the moment is more arising of the populistic forces which are certainly not working in that direction no the the danger is that populism and anti-european sentiment will will come uh and take possession in the periphery that's the danger and then the Euro falls apart step by step and it's a very destructive Pro process but it so happens that the uh the rahoy government is in in Spain is almost slavishly bought into the German pos position in my opinion too too far for their own good and Monty is certainly uh very committed to structural reforms and was doing make was making good progress and turn to uh Chancellor Merkel and said we need some I need some reinforcement we I need some to show some uh result and he meant primarily a reduction in the cost of borrowing which as long as it was happening was reinforcing him but his request actually annoyed the chancellor and and Monty is now a lame duck he only has a couple of months left he only has a couple of of months left he's got a few months left but mainly he lost the power to get the parliament to do his bidding if Germany had been willing to do more than the minimum and had actually reinforced a a reduction in the um um in the risk premium which today the BCB has accomplished uh uh uh by just simply having this uh plan of bond buying in the drawer uh uh then Monte could have continued and he would be he would have left behind a much reformed uh country uh Italy uh so an opportunity was lost next question uh Martha or my name uh I would like to ask you um what do you think what the other countries would say if Germany really would take this leading role I mean I read it every day you I think you all read every day in the press that many countries think that Germany is already having a a leading role in the euro crisis and the European Union and this I think this might also cause uh uh many conflicts what do you think about that you mean countries other than in Europe no I mean European countries in Europe um the question is if Germany is is getting taking a stronger role um what the other countries would say similar what what the what the how the other countries would react um to to Germany leading or leading to Le to Germany leading to Germany leading leading leading yes uh I think that that that uh um if Germany really uh agreed to some burden sharing and and EXT and risk its own credit to uh it would be greatly appreciated and I think Germany could actually emerge as the leader of uh Europe in the same way as the United States uh became the leader of the Free World now this is with the passage of time this is becoming increasingly difficult uh given the the prevailing mood here you read your own newspapers so uh you know what the mood is and that creates mistrust so to rebuild the trust gets more and more difficult but certainly had Germany taken a different view it would have emerged as they would have earned the Gratitude of the rest of of of Europe so is it to late but is it too late it it's it's 5 minutes after midnight let's say okay next question hello Mr Soros my name is Gia I am representing uh the young scholars initiative which started with the inet council in Berlin uh in April here and I would like you to comment what you started to comment before about uh economic intelligence and that was the the question that you thought was was the other person's question um economic intelligence in Academia in polic politicians and policy makers in media um young scholars initiative uh is conducting a series of interviews with uh different figures and we had a perspective of why um German thinkers or German economics have a very Orthodox view on how to conduct uh economic policies the the question is um yeah so I just why is the German thinking the so Orthodox yes by comparing and also a comment on on in general in and and I think it it has to do with the traumatic experience of inflation um mainly in the in the in the 20s uh but also before the the stabilization after the second world war so uh and that was Runway inflation in in Germany uh in in the 20s which wiped out the wealth of the middle class and prepared uh Germany for the rise of Nazi national socialism and that is the traumatic experience of Germany uh that has created this whereas the the unemployment and Depression was the traumatic experience in uh in the United States I I think there's one when we hear that always is traumatic experience but I think there's one thing which is also very um important for the German attitude and that is a mistrust in debt um like nobody here has 10 credit cards like you have as a student in in the US and you have them all maxed out already um the saving rate in Germany is still among the highest in the world um so now I'm being forced to give even more credit to countries who seem to be on the wrong track um so I think you're right and and actually Germany is the only country that didn't have a housing boom until maybe this year when we had exactly the same utions many of the publishing houses for example one one one one second uh let's let's speak into the microphone I can't can't hear you sorry we had our bubble uh encouraged by the government in the early '90s here in Berlin Li and some other places so the argument is that we had a housing boom just we had a housing boom in Germany a real estate bubble specifically in Berlin but also in East Germany after re reunification but it was only for three years and then it was over and it was not as longlasting as we have seen it like in the neighboring countries like in London or in Denmark or wherever you look I think I think the Berlin boom went bus before it started practically you you talk about but but but you real estate prices in in Berlin Rose by 177% last year yes and the rate of increase is faster this year so actually and this is another reason why uh uh it's so difficult for Germans to understand the danger of deflation that actually you now have a serious danger of a housing bubble developing in Berlin in Berlin is that already Panic buying in your term is that already Panic buying uh well it has a lot to do with the flight of capital uh and the negative real interest rates so it is a an an aberation it's just the other side of the capital flight where is wait wait wait the microphone hello Mr SOS Lisa from Fenton in New York now living in Berlin I want to H ask you to paint a picture either five or 10 years ahead of the lead or leave scenarios specifically if Germany leads uh leaves the Euro you mentioned there'll be political consequences for Germany specifically do do you have a picture of what that looks like for Germany Germany politically what are those political consequences that Germany would would pay now or five or 10 years later I really have to apologize about my hearing have a I will repeat it I will repeat it so this is the the basically the second part of your thesis what will happen if Germany is not leading but if it's leaving if it's only leaving so how would Germany and Europe look in 10 years from now if Germany is leaving the Europe politically specifically look unfortunately the line of these resistance leads to neither lead nor leave but muddle through and do the minimum as you have done until now that's the line of least resistance and that will prolong the Nightmare and eventually lead to the breakup of the European destroy the destroy the European Union and I I I can see it well I wouldn't predict it of course uh uh with any kind of certainty because because uh you can change course at any time uh you've come down so far it's going in that direction but even if you miss it now you may regret it and maybe doing something much more uh uh dramatic to reverse it but it will take more and more to reverse it and the conditions will deteriorate so that's a nightmare that and I find it so frustrating that you are so tantalizingly close to actually uh solving the problem and uh the authority have begun to move on some of the issues they uh for instance they' have recognize that the banking crisis and sovereign debt crisis are linked together like sies twins and they've also recognized they've got to have a banking Union because actually Germany is accumulating tremendous uh uh uh contingent liabilities to the EUR Euro clearing system uh so it's in Germany's interest to do it also so that's happening uh with the ECB what what has happened is that it does put a lid on the on on the risk premium and it will not go back to as high as it was before because it's an effective tool against uh speculation in other words it doesn't pay a Speculator uh to push um the premium higher uh because the ECB could activate the program at any time so uh I mean Spain could ask for it and then it would be activated as it is so uh that helps it actually buys some time all these are very positive uh developments and if if you then had the um the debt reduction uh fund and stopped pushing uh the data countes deeper and deeper into the Hall then we we could work it it would take time but Europe could work itself out so it doesn't take a lot and yet even that for instance actually the decision of the Constitutional Court may actually prohibit Germany doing those things in which case you will need a referendum to overcome it so so you are awfully close and yet so far so we have to watch the time unfortunately um we can take two more questions one was over there Andre wilin shto marato as you know um I like your analysis but in this case I'm not sure um I'm convinced about the solution um particular don't you think that uh Germany leaving the Euro would just be the first step of of a breakup of the Euro because apart from Germany there are lots of other um in es within the Euro Zone even without Germany in France and Portugal Greece and so on so and and and and Finland and and and the Netherlands so Germany leaving would be the first step of other leaving and then in in the end it would be uh disorderly or orderly breakup of the Euro zone so the German exit would be just the first step no German exit is only possible by treaty because the current treaty doesn't permit Germany to leave so you would have to have a treaty and an understanding and a cooperation and and it would be in the interest of the other countries to enter into such a treaty with Germany so it would be an orderly separation as distinct from the disorderly separation that would come from first Greek with Greece falling out then maybe Italy and you you're finished uh or or Spain so uh it's a difference between working out an orderly separation which allows for interest rate adjustments within limits uh and and uh working it out without interest rate adjustments it's more difficult to do it without but politically safer so final question Mr Lucky Man over there okay hello Mr Soros my name is Daniel vigant I'm here from Berlin I would like to ask you when the Germans decide to take the lead in Europe and and take all the consequences and risks what do you think uh a German leader the European Union should do concerning the markets what would be your advice what the per first politic political action should be concerning the regulation of the markets when the Germans Take the Lead well I think that this so when the Germans take indeed the lead what would be what should be their first action uh what what should they do first where should they to lead sorry not not to lead concerning to regulate the markets um concerning to regulate the markets regarding well uh I think that the the banking Union uh means effectively European regulation of the banking system as opposed to the National regulation and that is essential to keep the Euro together because already uh each National regulator is treating its country differently from the rest in other words uh a German regulator today does not allow an Italian Bank to transfer money from Germany to Italy uh and that leads to National silos and it destroys the functioning of of of the banking system uh so interbank uh transactions are uh at a stand still so the the banking regulation the banking Union is a very important step and that is happening it's it's in process so that is a positive thing uh that's that's going on there are uh other issues with regulation um I think uh the The Finnish Central Banker is about to report to commissioner barer his recommendations and he's uh uh proposing something between between the vicus commission from England uh and the vuler uh uh rules in America something between so this actually is happening thank you very much Mr Soros I think we could continue for um many more uh for a much longer time it was very exciting we learned it is 5 minutes past 12 and that we have the wrong leader that's not a good combination thank you very much and have a good evening [Applause]

Channel: George Soros

Views: 16,057

Keywords: soros

Id: DYRwajZzFcc

Length: 89min 29sec (5369 seconds)

Published: Thu Sep 13 2012