"The Future of Europe: An Interview with George Soros"
From the New York Review of Books:
Parts of the following interview with George Soros by the Spiegel correspondent Gregor Peter Schmitz appear in their book, The Tragedy of the European Union: Disintegration or Revival?, just published by PublicAffairs. This interview will appear in the April 24, 2014 issue of The New York Review.
Supporters of the Russian annexation of Crimea at a rally in Red Square, Moscow, March 18, 2014
Maxim Shemetov/Reuters
Gregor Peter Schmitz: The conflict in Crimea and Ukraine
has changed the shape of European and world politics, and we will come
to it. But let us first talk about a subject on which you’ve taken a
critical position over the years: the crisis of the European Union: With
regard to the euro, 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 Angela 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. I’m
hopeful that the Russian invasion of Crimea may serve as a wake-up
call. 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 underwater. 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. It’s generally agreed
that the eurozone is threatened by deflation but opposition from the
German Constitutional Court and its own legal departments will prevent
the European Central Bank (ECB) from successfully overcoming the deflationary pressures the way other central banks, notably the Federal Reserve, have done.
The
prospect of stagnation has set in motion a negative political dynamic.
Anybody who finds the prevailing arrangements intolerable is pushed into
an anti-European posture. This leads me to expect the process of
disintegration to gather momentum. During the acute phase of the euro
crisis we had one financial crisis after another. Now there should be 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. But
as the financial pressures abated, Germany whittled down the concessions
it had made. That led to the current arrangements, which confirm my
worst fears.
Schmitz: As we speak, European finance
ministers are in the process of concluding an agreement on the banking
union. What do you think of it?
Soros: In the process of
negotiations, the so-called banking union has been transformed into
something that is almost the exact opposite: the re-establishment of
national “silos,” or separately run banks. This is a victory for
Orwellian newspeak.
Schmitz: What’s wrong with it?
Soros: The incestuous relationship between national authorities and bank managements. France in particular is famous for its inspecteurs de finance, who end up running its major banks. Germany has its Landesbanken and Spain its caixas,
which have unhealthy connections with provincial politicians. These
relationships were a major source of weakness in the European banking
system and played an important part in the banking crisis that is still
weighing on the eurozone. The proposed banking union should have
eliminated them, but they were largely preserved, mainly at German
insistence.
Schmitz: That is a pretty drastic condemnation. How do you justify it?
Soros:
In effect, the banking union will leave the banking system without a
lender of last resort. The proposed resolution authority is so
complicated, with so many decision-making entities involved, that it is
practically useless in an emergency. Even worse, the ECB is
legally prohibited from undertaking actions for which it is not
expressly authorized. That sets it apart from other central banks, which
are expected to use their discretion in an emergency.
But Germany was determined to limit the liabilities that it could incur through the ECB.
As a result, member countries remain vulnerable to financial pressures
from which other developed countries are exempt. That is what I meant
when I said that over-indebted members of the EU are
in the position of third-world countries that are overindebted in a
foreign currency. The banking union does not correct that defect. On the
contrary, it perpetuates it.
