Lack political will in resolving Eurozone crisis: Soros
BANGALORE: Billionaire investor George Soros blamed the absence of European political will in resolving the ongoing euro zone crisis, and pointed out that Europe’s fiscal meltdown was bigger than the 2008 financial crash.
Speaking at an event organised by the Azim Premji University on Monday, Soros said that the sovereign debt crisis had been exacerbated by political movement that was increasingly against greater integration. .
Europe has been struggling to solve the three-year crisis that has seen Greece, Portugal and Ireland fail to refinance their debts, and forced to ask for bailouts. Spain, too, is seen on the verge of an economic collapse.
“An European Treasury has to be created on the lines of the US Federal Reserve. Right now, a fund with a total subscribed capi- tal of 700 billion euros is being created. But it is still at a very embryonic stage, and it will be some time before we can see its effects,” he said.
The European Stability Mechanism, which will replace t he European Financial Stability Facility bailout fund in mid-2012, will have an effective lending capacity of 500 billion euros and total subscribed capital of 700 billion euros.
Pointing out that the current crisis was a “direct consequence of the 2008 financial collapse,” the billionaire investor-turned-philanthropist said Germany, by the strength of its fiscal stability, would be calling the shots.
“It (Germany) is dictating the rules to be followed by the European Treasury, and a draconian austerity programme is expected to come into effect,” Soros said, adding that he expected a vicious deflationary cycle to follow.
Germany, Europe’s current economic powerhouse, has been at the forefront of handling the debt crisis and preserving the the unity of the euro zone - moves seen as a mark of its rock-solid currency and its bid to play a greater leadership role in Europe.
Calling for more effective financial regulation to be brought into effect, the investor said financial markets have grown too big and too powerful.
“Tighter regulations have been brought about - Basel I and Basel II - but they havent been very successful... Markets left to their own devices, are unstable and are prone to creating bubbles. Therefore, you need to have regulations,” he said.
Soros, who, infamously through his Quantum hedge Fund, made more than $1 billion by betting against the British pound in 1992, said he was much more bullish on developing economies such as India.
“The developing countries will also be affected by the financial crisis, but on a much lesser scale than developed nations such as the United States. There is a tremendous shift that is happening... india is a democracy with all its faults, and it is becoming increasingly important on a global plane,” he said.