Famed hedge fund manager claims country's budget austerity could trigger deflationary spiral in Europe
Germany “is the main protagonist” in the euro's crisis and risks inflicting deflation on the European Union because of its insistence on budget austerity, billionaire investor George Soros said.
“As the strongest and most creditworthy country it is in the driver's seat,” Soros said in a speech at Humboldt University in Berlin today. “As a result Germany objectively determines the financial and macroeconomic policies of the euro zone without being subjectively aware of it. When all the member countries try to be like Germany they are bound to send the euro zone into a deflationary spiral.”
European policy makers last month agreed on a loan package that imposes budget rules on distressed euro-area members after concern about Greece's fiscal crisis undermined investor confidence and pushed up borrowing costs across the region. Governments in Spain, Italy and Portugal have all pledged to step up deficit-cutting efforts.
“The euro is in crisis and Germany is the main protagonist,” Soros said. “Unfortunately Germany does not realize what it is doing. It has no desire to impose its will on Europe; all it wants to do is to maintain its competitiveness and avoid becoming the deep pocket to the rest of Europe.”
Chancellor Angela Merkel this week championed German export strength as “the right thing” for her country, spurning President Barack Obama's call to boost private spending as both leaders prepare for Group of 20 talks. Reducing Germany's budget deficit by 10 billion euros ($12 billion) per year “won't put a brake on the world's economic growth,” Merkel said.
‘Grave Accusation'
“By insisting on pro-cyclical policies, Germany is endangering the European Union,” Soros said. “I realize that this is a grave accusation but I am afraid it is justified. To be sure, Germany cannot be blamed for wanting a strong currency and a balanced budget but it can be blamed for imposing its predilection on other countries that have different needs.”
Soros gained fame in the 1990s when he reportedly made $1 billion correctly betting against the British pound. He also wagered that Germany's mark would appreciate after the collapse of the Berlin Wall in 1989 and that Japanese stocks would start to fall in the same year.
Soros Fund Management LLC manages about $25 billion. Soros said in April that “I'm no longer running the fund.”
