[jolepp]

Billionaire investor George Soros has warned European leaders they have a "three-month window" to save the euro.

He said he believed Greece would elect a government willing to abide by loan conditions imposed by the EU in this month's elections.

But he said the German economy would begin to weaken in the autumn, making it much harder for Chancellor Angela Merkel to provide further support.

He said leaders did not understand "the nature of the crisis".

He said that while European leaders were focusing on debt levels, the crisis was "more of a banking problem and a problem of competitiveness".

For this reason, he said they had "applied the wrong remedy".

"You cannot reduce the debt burden by shrinking the economy, only by growing your way out of it," he added.

Mr Soros, speaking at a conference in Italy, was referring to the drastic austerity measures that have been implemented across Europe, measures that are now being questioned by a growing number of politicians and commentators.
...

http://www.bbc.co.uk/news/business-18320881

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Last edited by jolepp; 06-04-2012 at 06:40 AM.

[fisheye freak]

Personally, I hope the Euro fails. The great socialist experiment that allows some nations to sponge off the hard work of others must eventually fail.The longer this situation persists, the harder the fall will be. If I were German, I would be getting rather annoyed working hard to support those profligate Greeks who should never have been let in to the Euro Zone in the first place. Next, I would absolutely LOVE to see the fall of the UN. Please note, George Soros funds GetUp, a mob intent on destroying western capitalism.

[GeneV]

Though the article on art was interesting, the link in the OP did not go to the Soros Speech. This one does. Remarks at the Festival of Economics, Trento Italy | George Soros

The speech in its entirety is an interesting critique of economics. Love him or not, Soros understands markets, and his observations on the failure of markets to behave as classical or worse, Austrian, economics would predict is instructive. His theory is really that governments aren't understanding bubbles.

I found a two-way connection between the participants’ thinking and the situations in which they participate. On the one hand people seek to understand the situation; that is the cognitive function. On the other, they seek to make an impact on the situation; I call that the causative or manipulative function. The two functions connect the thinking agents and the situations in which they participate in opposite directions. In the cognitive function the situation is supposed to determine the participants’ views; in the causative function the participants’ views are supposed to determine the outcome. When both functions are at work at the same time they interfere with each other. The two functions form a circular relationship or feedback loop. I call that feedback loop reflexivity.

* * *
Obviously, I did not discover reflexivity. Others had recognized it before me, often under a different name. Robert Merton wrote about self-fulfilling prophecies and the bandwagon effect, Keynes compared financial markets to a beauty contest where the participants had to guess who would be the most popular choice. But starting from fallibility and reflexivity I focused on a problem area, namely the role of misconceptions and misunderstandings in shaping the course of events that mainstream economics tried to ignore. This has made my interpretation of reality more realistic than the prevailing paradigm.

* * *

According to my theory financial markets may just as soon produce bubbles as tend toward equilibrium. Since bubbles disrupt financial markets, history has been punctuated by financial crises. Each crisis provoked a regulatory response. That is how central banking and financial regulations have evolved, in step with the markets themselves.

His observations on the European banking crisis are fascinating. Not only was there a unity of currency without a political unity, but there was little unity in the banking system, which caused speculation which was counterproductive and a disintegrating response to the 2008 crisis as each country had to pick up the pieces its banking system had incurred in the crisis, while the Eurozone maintained an outwardly unified currency.

The first step was taken by Germany when, after the bankruptcy of Lehman Brothers, Angela Merkel declared that the virtual guarantee extended to other financial institutions should come from each country acting separately, not by Europe acting jointly. It took financial markets more than a year to realize the implication of that declaration, showing that they are not perfect.

[Nesster]

The great socialist experiment that allows some nations to sponge off the hard work of others must eventually fail.

or another way of putting it: the great euro-colonial experiment that allows some nations/corporations to profit from free access to lower cost labor pools and less-competetive domestic markets must eventually fail as overly one-sided...

[GeneV]

or another way of putting it: the great euro-colonial experiment that allows some nations/corporations to profit from free access to lower cost labor pools and less-competetive domestic markets must eventually fail as overly one-sided...

Or, if one reads Soros' speech carefully, banking colonialism has consequences.

[jeffkrol]

Personally, I hope the Euro fails. The great socialist experiment that allows some nations to sponge off the hard work of others must eventually fail.The longer this situation persists, the harder the fall will be. If I were German, I would be getting rather annoyed working hard to support those profligate Greeks who should never have been let in to the Euro Zone in the first place. Next, I would absolutely LOVE to see the fall of the UN. Please note, George Soros funds GetUp, a mob intent on destroying western capitalism.

You COMPLETELY ignore the fact that German "success" was based on "other EU" countries buying from them.. you know all those "socialist" ones...WHICH is why they (Germany) has had to support them..
Cyclical.........

1. The perceived economic benefits of the euro to Germany. Many analysts, including myself, have noted the economic advantages for Germany of a "hard" currency shared by its European trading partners. Principally, from the perspective of Germany's mercantilist economic model, a common currency eliminates the ability of Germany's trading partners to employ their historic palliative of devaluation to correct persistent German trade surpluses gained via superior productivity growth.

The problem is that a proper analysis cannot end there. There is another side to the ledger of trade surpluses: Trade deficits are the necessary counterpart to trade surpluses; trade deficits are financed by debt; and the debt of trade deficit nations is financed by the accumulated surplus of trade surplus/creditor nations. Such an arrangement can support above-trend growth in a surplus nation such as Germany for a time. However, in the long run, increasing indebtedness of the deficit nations can turn into an solvency crisis which, in turn, devastates the savings pool and financial systems of the creditor nations.

http://seekingalpha.com/article/339681-germany-s-dilemma-and-the-future-of-the-eurozone-part-1

Until now, German leaders have insisted on an orthodox approach: Germany has been willing to support emergency multi-lateral financing and other measures, but only on the condition that the aid recipients undergo harsh "austerity" measures. Their position has been that countries that are having difficulties raising money in financial markets must slash spending and raise taxes in order to balance their budgets and restore "market confidence."

It is now clear that such austerity policies have been making things worse rather than better. Austerity policies in the context of depressed economic and financial conditions have caused economies to shrink and fiscal deficits to balloon rather than contract. This, in turn, has caused confidence in financial markets to collapse. Furthermore, the only "confidence" that financial markets have expressed in European policy has been when they have gone in the opposite direction of austerity. The recent rally in risk assets in Europe and the U.S. as reflected in index ETFs such as (SPY), (DIA), (EWG), (EWQ), (EWI) and (EWP) have been in response to heterodox and expansionary policies such the recent implementation of LTRO by the ECB or the announcement of the EFSF in October.

As the economic and financial failure of austerity policies in current conditions has become increasingly clear, a growing number of nations inside and outside of the EU are trying to persuade Germany and the EU as a whole to reverse course.

cutting off your nose to spite your face............

[GeneV]

Speaking of cutting off your nose, on a more local level, hoarding money may actually result in assets which are less valuable. Peter S. Goodman: Bleeding Cash Conservatives Wasting Money To Punish Vulnerable Americans

This article mentions that homeowners with underwater mortgages may not maintain their homes. The problem I see here on the ground is even worse.

There are corporations now, usually small "paper" companies, which pay a homeowner in or nearing foreclosure a pittance for their rights. Then, they rent the property out. They usually do not maintain it and they pay none of the bills--not to the bank or any HOA which maintains the common areas. This buying pulls as much cash from the home as possible during the year or more it is taking to get through the foreclosure system, and the bank eventually gets a far less valuable asset. Now, if the government weren't so intent on punishing the borrower for perceived stupidity or recklessness in not understanding the mortgages they were signing, and simply renegotiated the loans, you would often keep an owner-occupied property or at least a property owned by an equity-seeking landlord and the net loss to the banks and to the economy would be less.

Soros is saying, to some degree, that the banks of the central European countries are doing this to themselves by damaging the financial systems of the "peripheral" countries.

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Last edited by GeneV; 06-04-2012 at 06:33 AM.

[jolepp]

Though the article on art was interesting, the link in the OP did not go to the Soros Speech. This one does. Remarks at the Festival of Economics, Trento Italy | George Soros

The speech in its entirety is an interesting critique of economics. Love him or not, Soros understands markets, and his observations on the failure of markets to behave as classical or worse, Austrian, economics would predict is instructive. His theory is really that governments aren't understanding bubbles.

Fixed the link (I must have grabbed the URL from the wrong tab? ). The speech in its entirety was a very interesting and insightful read, thanks! .

In a way Soros is a godfather of the Euro: for the smaller economies avoiding 'central bank runs' in connection to speculation on their currency (for which Soros is (in)famous) was one advantage of joining the Eurozone.

[GeneV]

In a way Soros is a godfather of the Euro: for the smaller economies avoiding 'central bank runs' in connection to speculation on their currency (for which Soros is (in)famous) was one advantage of joining the Eurozone.

Yes, but I think he is saying that when Merkel said countries have to back up their own banks, she put bank runs back on the table.

[stanislav]

As a matter of fact, same people that helped Greece to falsify their own economic papers when Greece was applying to Euro are now pointing finger at Greece saying thet what they did was wrong. Well, it may be so, but more wrong was this forgery which helped Greece into Euroe to begin with, yet noboy was held responsible!

Moreover in financial circuits it was a well-known fact that Greece was on the edge of bankrupcy for long time before the crash actually happened. Yet everybody lent money willingly because they knew that somebody would have to cover for it. I would rather see that one, or several of those financial institutes go out of business and get some leading people sentenced to the life so other would be more carefull in spending other peoples money.

Do not forget that this crisis was preceeded by US home subpremie loan crash just couple of years ago. And what did the US government do? They put even more money in the system, rather than leting couple of banks go out of business. Same behaviour happens time and time again, so as long banks know that someone (states, countris and their tax-payers) are going to cover losses of risky businnes, then the risky businnes is going to continue since there is no risk at all. I would say that it is time to stop that kind of riskfull behaviour and let the banking system become servant rather than master of global economy.

[GeneV]

Greece is a convenient diversion from the more basic problem that Soros is discussing. Everyone who has discussed the Euro problem and criticized the response from Krugman to Soros points out that Greece had its own problems unique to that country. Bigger economies among the "peripheral" countries, such as Spain and Italy, are a different matter.

[Nesster]

Thank you Gene, for reminding us... Here's something on Spain:
Euro's Future 'To Be Decided Within Weeks'

The future of the euro will be determined over the next few dramatic weeks, the Spanish finance minister Luis de Guindos has warned.

'I don't know if we are on the edge of a cliff, but we are in a very, very difficult position', de Guindos said. 'The future of the euro is going to play out in the next few weeks in Spain and Italy'.

As new data showed Spain's unemployment rate at a record 24.3%, budget minister CristóbalMontoro reported that the country's regional governments, which kept the national budget deficit at 8.9% last year, had balanced their budgets in the first quarter of this year.

But he admitted this was only because central government had brought forward €5bn (£4bn) in payments to the most cash-strapped regions, and admitted that the task of reining in their deficits was far from done.

Montoro also warned other European countries that if Spain was allowed to collapse without paying its debts then that would inflict damage on them too.

'Who holds our external debt ?' he asked. 'You will understand that those who are most interested in things going well for Spain are the creditors. Or do you think they don't want to get their loans back ? I can assure you that they do'.

Spain must raise €19bn to save failed lender Bankia and also needsto find money to prop up regional governments, some of whom have been given junk status by ratings agencies and as a result cannot raise their own funding.

But UBS Investment Research said there is now a consensus that the Spanish banking sector in general needs a recapitalization of up to €100bn. That might need further state aid, or help from Europe's bailout fund.

[GeneV]

It sounds like Germany is warming to the idea of centralized bank regulation, a main tenet of Soros' speech. As euro problems fester, ECB eyes a more perfect economic union - The Washington Post However, I'm not sure the goal would be the same. Merkel's talk of more "Europe" may just mean more "Germany."

Today's Post reports that Soros' speech is one of the most recommended out there. Another WP writer summarizes this important reason Soros cites why Germany must save the Euro:

Let me put that another way: It’s well understood that Germany has to subsidize the euro zone if the euro is to survive. It’s less well understood that the currency zone itself is an ongoing subsidy to Germany. It keeps their currency cheap and their exports booming. It keeps the other countries in the euro from defaulting on their debts, many of which are owed to German financial institutions.
So if the euro breaks up, Germany is likely to lose one of the main drivers of their economy — cheap exports — and face a financial crisis. And that’s in addition to the political consequences, and the likely global recession, and the shame of having failed the grand dream of a united Europe alive.

http://www.washingtonpost.com/blogs/ezra-klein/post/why-george-soros-thinks-...tml?tid=ts_biz As I read it, the Euro does for Germany what China has done for itself with the Yuan.

[kswier]

Personally, I hope the Euro fails. The great socialist experiment that allows some nations to sponge off the hard work of others must eventually fail.The longer this situation persists, the harder the fall will be. If I were German, I would be getting rather annoyed working hard to support those profligate Greeks who should never have been let in to the Euro Zone in the first place.

Actually, I suspect Germany benefited from having Greece in the Euro prior to the financial collapse. As an economic powerhouse, I am sure Germany needed places to sell their stuff...places with a strong currency (like the Euro). If all the weak countries in the Euro leave, I suspect they will not be able to purchase as many goods from Germany. Also, some manufacturing might move to the countries with weaker currency.

I suspect that Greece joining the Euro hurt Greece much more than Germany or any of the other rich countries.

[GeneV]

Actually, I suspect Germany benefited from having Greece in the Euro prior to the financial collapse. As an economic powerhouse, I am sure Germany needed places to sell their stuff...places with a strong currency (like the Euro). If all the weak countries in the Euro leave, I suspect they will not be able to purchase as many goods from Germany. Also, some manufacturing might move to the countries with weaker currency.

I suspect that Greece joining the Euro hurt Greece much more than Germany or any of the other rich countries.

Some estimates say the Mark would be valued at 50% more than the Euro--a killer for exports.