Thoughts on Soros’ Thoughts

Chrystia Freeland | Analysis & Opinion | Reuters.com.

George Soros is a genius. I mean that in the old sense of the word thinking of people like Einstein or Locke,  not the director of a summer movie.

Even a genius gets it wrong sometimes. Germany may be able to lead the euro out of trouble, but it cannot leave. The economics are disastrous.

The rest of Europe owes Germany €750bn in Target2 balances in the banking system. When money moves from a Eurozone bank in one country to another, the ECB does not actually move the money. Rather, it makes bookkeeping entries on a ledger. At first, money flowed to German banks, because of the its exports, but now money is fleeing the beleaguered PIIGS banks and being deposited in Germany among other havens.

The result is that if Germany decided to revert to the mark, its banks would have a €750bn hole on their balance sheets that would have to be made up with a bailout of the entire German financial system. I know Mr. Soros is a shrewd speculator and a genius, but just because he says that the German exit could be managed does not make it true. Even today, two plus two must still equal four.

On the other side, old George is being very selective with his data when he says that

“It’s remarkable, remarkable, when you look at the Latin euro, that is to say the euro excluding Germany, it actually compares very favorably, not only with Britain, but with the United States and Japan,”

Budget deficits and total debt compare favorably with those countries, but that is where the comparison ends. The PIIGS do not have competitive export industries to export their way out of trouble, and their demographic situation is catastrophic. The United States and Britain are younger countries; true, they have demographic troubles looming in the future, but the PIIGS are already there.

Japan has those demographic troubles, but it actually makes things that the rest of the world wants to buy like Britain. It goes without saying that the United States has many world-leading industries and is blessed with a wealth of natural resources.

A Latin Euro would be akin to the Hapsburg Empire on the eve of World War I, a bunch of drunk men holding each other up by leaning against each other. One well-placed push will send the whole mob to the ground.

Mr. Soros is a member of the cult of the euro. He believes that the euro is a step on the way to a political union that will lead to a United States of Europe. The reason the Europeans supposedly need a politcial union is to end the possibility of war on the continent.

Hasn’t this possibility already been dramatically reduced by the stability policies championed by the United States? The Marshall Plan and NATO did most of the job years ago. Even before the advent of the euro, would you have thought that France and Germany could go marching off to war against each other in 1998?

The raison d’être for the cult of the euro is really to pool Europe’s power so that these countries do not become irrelevant in world affairs. The ambitions of politicians and elites run counter to the common people. Jean, Juan, Johan and Giovanni do not need this power; the elites do. The people are doing fine in countries like Denmark, which stayed out of the euro.

In the article, Soros states

“The European Union,” he said, “was meant to be an association, a voluntary association of equal states, each of which is devoted to the principles of democracy, rule of law, human rights, sacrificing part of their sovereignty for the common good.”

All of these noble principles had been achieved before the advent of the euro. In fact, the existence of the euro is what is threatening the EU today. For some reason, the elites are equating the EU with its principles with the common currency. Several countries in the EU chose to retain their national currencies, and they are no less democratic, nor devoted any less to rule of law or human rights than those who chose to use the euro.

Eventually, a politician in one of the PIIGS will develop a persuasive argument for leaving the euro that sways the electorate resentful of humiliating austerity conditions. The breakup will begin. Maybe it won’t happen tomorrow, but it will happen.

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