SPIEGEL Interview with George Soros 'Merkel Is Leading Europe in the Wrong Direction'

Billionaire investor George Soros: "The euro crisis is a direct continuation or consequence of the 2008 crash."
AP

Billionaire investor George Soros: "The euro crisis is a direct continuation or consequence of the 2008 crash."

Part 2: 'A Policy Failure on the Part of Europe'


SPIEGEL: Like many Americans, and the US government, you would like to see the euro get rescued by pouring more money into the problem. Why doesn't the US increase its contributions to the bailout through the International Monetary Fund?

Soros: There should be no need to have the IMF come in. It is only a policy failure on the part of Europe and particularly of Germany, because Germany is in charge. Europe as a whole is in external balance and should be able to solve its own internal problems.

SPIEGEL: You have repeatedly pushed for the introduction of euro bonds. German Finance Minister Wolfgang Schäuble responded by saying: Euro bonds give the wrong incentives because you "spend money you do not have to pay the bills of others."

Soros: People like Schäuble don't seem to understand that the heavily indebted countries are now at a severe disadvantage, because they have basically become heavily indebted in a foreign currency, the euro. They do not control it, and so they are in the same position as third world countries in Latin America were in at the beginning of the 1980s, where the countries became indebted in dollars. It was a situation that led to a lost decade there. Europe now faces a lost decade. That is the reason we need euro bonds and a new EU fiscal compact.

SPIEGEL: The EU has had a fiscal compact before, and the rules simply weren't followed. Why would the new fiscal pact be any different?

Soros: In the past, there was no enforcement mechanism. If you introduce euro bonds, the bulk of the financing would be on equal terms between Spain and Germany. But if the Spanish wanted to borrow additional amounts, they would have to be borrowed by Spain using the country's own credit, which would be extremely expensive because there would be a sharp penalty. Effectively, creating euro bonds would create the mechanism for controlling the amount of borrowing by each individual country.

SPIEGEL: But German politicians are hellbent on preventing euro bonds.

Soros: That is no longer true. Certainly, former German Finance Minister Peer Steinbrück used to say: "Euro bonds? No way." Today, Social Democratic Party heavyweight Frank-Walter Steinmeier says, like me, that what Chancellor Merkel is proposing in response to the euro crisis is necessary, but not sufficient.

SPIEGEL: Steinmeier is not in power.

Soros: The point I want to make is that opposition to euro bonds can no longer be described as the German position. It happens to be the position of this specific government at this moment in time.

SPIEGEL: What should happen with Greece?

Soros: Europe soon will need to pump further billions of dollars into Greece to prevent an immediate default. I expect that the money will be put up because Europe has not yet properly prepared for a Greek default. A disorderly default could cause so much harm that it may be better to pay the money now and allow a default to occur later.

SPIEGEL: Would a contagion effect in the rest of the euro zone be inevitable if Greece were to default now?

Soros: The governments of Italy and Spain can probably be ring-fenced because of the long-term refinancing operation (LTRO) that was provided by the European Central Bank. But I am worried about the banks and the bank deposits. If Greek depositors lose money, you may not be able to prevent a flight from Italian and Spanish banks -- which could lead to the ultimate breakup of the euro.

SPIEGEL: The US, always prone to dole out advice to Europeans, is not exactly in good shape either. The Occupy Wall Street movement has put the massive social inequality in America on the agenda. As a world famous investor with an estimated fortune of more than $22 billion dollars, what do you think of the movement?

Soros: I have sympathy with their anger, because they are victims. Financial investors in Wall Street investment banks got the benefit when the banks made a profit. But whenever they lost a lot of money, the state was forced to take over the losses. That was very unfair, and the people who carried the loss -- because they lost their jobs or had to pay more taxes -- have a very legitimate complaint.

SPIEGEL: Do you also support the idea, as demanded by the Occupy movement, that rich people like you should pay higher taxes?

Soros: I do. And I do not support the Republicans who want to save me from paying taxes.

SPIEGEL: What is your tax rate?

Soros: My effective tax rate is relatively low, but only because every year I contribute at least the maximum 50 percent of my income to my foundation.

SPIEGEL: If you support the idea of higher taxes, then why don't you just pay more taxes instead of giving the money to your foundation?

Soros: Because I think that my foundation uses the money better than the government does. In any event, I do pay taxes.

SPIEGEL: You are basically saying that you are smarter than the government.

Soros: Well, I have greater freedom of action than a bureaucracy. I also care more about the causes to which I contribute.

SPIEGEL: So how can you then turn around and tell other rich people that they should pay more taxes?

Soros: If every rich person gave 50 percent of their wealth to charity, I would not say they should pay more taxes.

SPIEGEL: You are a lifelong Democrat, but you recently said there is not much of a difference between the likely Republican presidential candidate, Mitt Romney, and Barack Obama. Did you mean that seriously?

Soros: Only a small part of my answer was quoted. There are a lot of differences between the people whom each would bring into the government and the kind of judges they would nominate. Even so, I neglected some important differences between them. For example, Obama would insist on higher taxes than Romney. That is why my fellow hedge fund owners support Romney and not Obama.

SPIEGEL: They also might like him because he proudly runs on his record as a businessman. In this time of social tensions, should a venture capitalist become the next US president?

Soros: Romney claims to know how to create jobs, but as a private equity investor he probably destroyed more jobs than he created because he wanted to maximize profits.

SPIEGEL: Are you going to fight Romney and support President Barack Obama with millions of dollars in donations as you did during his last campaign?

Soros: I do not intend to make contributions on that scale.

SPIEGEL: Are you disappointed with Obama?

Soros: Disillusioned is a better word. He is more of a follower than a leader -- much less so than Angela Merkel, for example. Unfortunately, she is leading Europe in the wrong direction. That is why I am trying to change her mind. I still believe Germans are open to arguments.

SPIEGEL: Mr. Soros, we thank you for this interview.

Interview conducted by Georg Mascolo, Gregor Peter Schmitz and Martin Hesse

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