Billionaire investor George Soros says Germany can help Europe avoid a depression by committing itself to helping the continent’s weaker economies or leaving the eurozone. Soros spoke in New York City on Monday at the 54th annual meeting of the National Association for Business Economics.
George Soros set up his prescription for rescuing Europe's economy by telling the roomful of experts that economics is not an exact science like physics, which can be quantified and predicted.
“Human affairs are fundamentally different from natural phenomena because they have participants who have their own will and their actions are based on their interpretation of reality, not on the actual state of affairs," he said.
Soros said this idea is difficult for people to understand because it is so simple. He cited what he called the best of intentions in Europe’s faltering attempt to introduce a common currency, the euro. He warned that attempt could lead to an economic depression that Germany can help avoid in two ways.
First, he said, it could help rescue Europe’s weaker economies by taking on the role of what he called a “benevolent hegemon.” The other, more controversial way, would be for Germany to abandon the euro.
“Because then the problem would simply disappear into thin air, because the euro would go down in value, but the debt would go down with the euro," he said.
Soros said the euro was flawed from the start because of several misconceptions, including the creation of the currency without a treasury to back it, the unforeseen effects of German unification on the European economy, and a credit boom that created an unsustainable housing bubble.
Among the several hundred people attending the conference is Adolfo Laurenti, an Italian immigrant and economist with Mesirow Financial, an investment and consulting firm in Chicago. He says economists should pay attention to George Soros.
“They are forgetting the basics of human behavior, how people think, how people process information, how people respond to economic situations, and what in the aggregate that means for the economy as a whole," he said.
George Soros said one of the most important long-term issues is whether China becomes more open or more repressive. He said that country’s growth model is “running out of steam.”
“Because consumption as a percentage of the GDP [gross domestic product] has fallen to one-third, from about 50 percent, and, of course, in the United States it’s two-thirds," he said.
Soros defended moves by central banks to stimulate growth. He said those institutions must confront the question of how to end stimulus programs without spurring inflation.