DAVOS, Switzerland—George Soros Wednesday offered his own view of the euro-zone debt crisis, but refrained from giving investment advice. The billionaire financier declined to offer guidance despite requests from journalists at the World Economic Forum here for his opinion on equities markets, gold and oil, but stayed largely focused on Europe’s current problems.
Soros, 81 years old, answered questions on a variety of topics, ranging from the likelihood of the Russian ruble becoming a reserve currency (he thinks the chances are “dim,”) to whether he would test the Swiss National Bank’s resolve to defend the Swiss franc at $1.20 (he won’t).
However, his remarks included his interpretation of how the debt crisis evolved, his plan for a solution and the possible outcome.
“With individual countries under strict fiscal constraints, the stimulus will have to come from the European Union and it will have to be guaranteed jointly and severally,” he says. “That will require Eurobonds in one guise or another.”
Soros was critical of the European Central Bank’s long-term refinancing operation (LTRO) in December, which expanded its balance sheet by EUR489 billion. The move hadn’t cured the financial disadvantage of highly indebted member states, he said, even though it had relieved the liquidity problems of European banks and given a boost to markets.
His own solution would allow Italy and Spain to refinance their debts by issuing treasury bills at rates of about 1%. “The plan is rather complicated, but it is legally and technically sound,” he says. “It allows the ECB in partnership with the (European Financial Stability Facility) and the (European Stability Mechanism) to do what the ECB couldn’t do on its own: act as lender of last resort.”
His plan was rejected by “authorities” – he didn’t say which – in favor of the LTRO.
“The difference between the two schemes is that mine would provide an instant reduction in interest costs to governments while the one actually adopted has kept the countries and their banks hovering on the edge of a precipice.”
He was critical of Germany’s handling of the crisis, although his words were chosen carefully to avoid offense. “The trouble is that austerity that Germany wants to impose will push Europe into a deflationary debt spiral,” he says.
German Chancellor Angela Merkel is due to give the opening address at the World Economic Forum later Wednesday.
Soros’ remarks were adapted from his new book, “Financial Turmoil In Europe and The United States,” which he acknowledges is incomplete because the euro-zone debt crisis is ongoing. “I won’t repeat or summarize what’s in the book. You’ll have to read it for yourselves,” he says. “All I can do is to bring you up to date.”