George Soros (Photo credit: World Economic Forum)
The twin crises of Europe -- undercapitalized banks and massive risk premiums on sovereign debt -- can not be tackled independently. And it is the lack of a comprehensive plan that has put the eurozone on the brink of disintegration with the clock running out, according to George Soros.
In an appearance on Bloomberg Television, Soros said "there is a disagreement on the fiscal side and unless that is resolved in the next 3 days then I am afraid that the summit could turn out to be a fiasco, and that could be fatal."
The concerns come from a man who is very familiar with currency-related crises, having successfully bet against the British pound 20 years ago, and one who says there is "a serious threat of the euro breaking down," if some form of agreement is not reached.
In some ways, Soros went on to tell Bloomberg TV, even avoiding a blowup akin to the Lehman Brothers collapse in 2008 may not be enough to save the 17-nation currency with all its current members. "The euro system that would emerge would actually perpetuate the divergence between creditors and debtors," he said, "and would create a Europe that is very different from the Europe...that led to the creation of the European Union."
The end result, Soros warns, is a Germany that is permanently dominant. The solution that avoids that outcome in the legendary investor's view, is a fiscal authority made up of finance ministers that would be charged with overseeing and allocating the different bailout facilities that have already been agreed to, setting up a debt reduction fund that would issue joint treasury bills, which are different in his view from the Euro bonds that Germany is so resistant to.
Those treasury bills issued by the fiscal authority, would be priced "on a competitive basis," and likely draw plenty of interest even though yields would likely be under 1%, Soros said, thanks to the instruments "being truly riskless and guaranteed by the entire community."
European stocks were battered Monday, with Italy's FTSE MIB losing 4% and Spain's IBEX 35 off 3.7%. Ten-year bond yields in the country climbed to 5.99% and 6.58%, respectively, as spreads over corresponding German bunds widened further.