George Soros made headlines this week with a striking proposal that to save Europe, Germany must “lead or leave.” The leadership part was familiar: Outside Germany, at least, it is becoming conventional wisdom that Europe will survive only if the union’s behemoth provides more decisive leadership – and writes bigger cheques.
The catch is that the rest of Europe, particularly its beleaguered so-called Club Med countries, doesn’t seem to be in much of a position to coerce Berlin to do anything. That is where Mr. Soros’s second alternative – leaving – comes in. In an interview in Vienna last weekend and in a speech in Berlin on Monday, Mr. Soros added his influential voice to a cluster of iconoclasts who have asserted that southern Europe’s fate need not be decided in Germany.
If Germany is unwilling to lead, the billionaire financier argues, the southern Europeans should ask Germany to leave. His prediction is that these currently sickly countries would do perfectly well.
“If Germany left, the common market could hold together and actually it would be a remarkable relief,” Mr. Soros told me. “The euro would fall in value, so the debt which is denominated in euro would also fall in value and the competitiveness of the debtor countries compared to Germany and the other creditor countries would greatly improve.”
In this scenario, the Club Med countries would benefit partly from the inflation and currency devaluation that their existing monetary marriage to Germany precludes. Their renaissance would also be based on their economic fundamentals, which Mr. Soros argues are strong but are being discounted by the markets because of the existing fiscal and monetary straitjacket.
“It’s remarkable, remarkable, when you look at the Latin euro – the euro excluding Germany – it actually compares very favourably, not only with Britain, but with the United States and Japan,” Mr. Soros said.
“A Latin euro, where the members formed a fiscal union and would therefore go to introducing euro bonds, would be able to borrow at rates comparable to Japan, the United States and the United Kingdom. They would rank equally on the macroeconomic basis, if you compare them in terms of total indebtedness and deficit.”
Mr. Soros argues that Europe couldn’t survive the exit of one of its weaker, southern members but that it could weather the “amicable” departure of Germany.
“If Italy or Spain left, not only the euro but also the common market and the European Union would fall apart,” he told me. “Whereas if Germany left, the common market could hold together.”
Mr. Soros acknowledges that a German departure would be “a big dislocation” and a “shock,” but he thinks that the euro and the financial arrangements it supports would endure. This is, mildly put, not the consensus view.
Yet he knows a thing or two about currencies and bonds, which is why his economic policy prescriptions carry such weight.
He is also one of the millions of Europeans with experience of death and destruction. As a teenager, he hid from the Nazis in occupied Budapest; while in his teens, he fled the Communists to make his way, penniless and alone, in Western Europe.
That personal history helped to inspire the second part of Mr. Soros’s message of the promise and the peril of Europe. When it comes to peril, he warns that existing policy is sorting the continent into two tiers. This Europe, he said, “is divided into debtors and creditors, with the creditors led by Germany being in charge and calling the shots and the debtors relegated to an inferior status which is threatening to become permanent.”
As for the promise, he remains passionately supportive of the moral idea that animated European convergence. “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.”
As Europe teeters from one crisis to the next, Mr. Soros reminds us all that at its heart, the European Union is about more than deficits and currencies and bonds. Europe is also a political and moral idea – one very much worth preserving.