Michel Euler/Associated PressGeorge Soros promoted an alternative plan to deal with the euro crisis, as outlined in his new book.The billionaire investor George Soros said on Wednesday that it was possible Greece could be pushed out of the euro zone this year.
“The odds, let’s say, are in that direction,” Mr. Soros said in a speech at the World Economic Forum in Davos. Instead of working to keep the country as a member of the single currency, he added, European policy makers ought to focus on saving the rest of the euro bloc.
Recent action by the European Central Bank, which in December moved to provide large amounts of liquidity to the region’s banks, have calmed the financial markets for now, he acknowledged. But he said these measures would not be enough to solve the festering sovereign debt problems that have driven up the borrowing costs of weaker euro zone countries. Spain and Italy, he said, remain “dangerously exposed.’’
“It leaves the weaker members of the euro zone relegated to the status of third world countries that became highly indebted in a foreign currency,” he said. “Germany is acting as the task master imposing tough fiscal discipline. This will generate both economic and political tensions that could destroy the European Union.”
Mr. Soros used the occasion to promote an alternative plan to deal with the euro crisis, as outlined in his new book, “Financial Turmoil in Europe and the United States.”
Under his proposal, the European Central Bank and others, including the European Financial Stability Fund, would act in concert as “lenders of last resort” to governments, a role that the central bank has steadfastly disavowed. Mr. Soros says this would allow Italy and Spain to issue treasury bills at around 1 percent.
The European economy will also need stimulus to get moving again, Mr. Soros said, adding that the cost would have to be shouldered collectively. As such, it will require the issuance of so-called euro bonds under which the debt of euro zone members would be pooled “in one guise or other.”
If nothing more is done, and if policy makers continue to mostly pursue austerity measures, the euro zone will fall into a debt-deflation spiral, he said. That, in turn, could prompt widespread social disorder, he added.
“What is happening in Hungary today,’’ Mr. Soros said, “is a precursor of what is in store.”