Soros is Wrong: Let the Euro Fail

In a column posted on Reuters, billionaire George Soros laid out his case for why Germany needs to step in and bail out the euro. Soros is wrong. Colossally, massively wrong. Germany needs to run as far away from the euro as it possibly can, before it, too gets dragged down into the quicksand. The same goes for France and every other euro nation: GET OUT! The theory Soros offers is that Germany, and really only Germany, can step up and guarantee loans (with low interest rates) to the failing nations of Portugal, Ireland, Italy, Greece, and Spain. He theorizes that they need to do so in order to prevent a larger crisis from spreading. Soros says, grimly, "It should be recognized that a disorderly default or exit from the eurozone, even by a small country like Greece, would precipitate a banking crisis comparable to the one that caused the Great Depression." That's only true if Greece, and only Greece, up and leaves the eurozone. That could, in theory, lead to a true Greek default on their euro debts and cascade throughout the banking system of Europe. That assumes Germany and France do nothing but watch the dominos fall, which I find it hard to believe would be the case. Much more likely, if Greece decided to say "to hell with these debts" and dropped out of the eurozone, Germany and France would rapidly agree to cover those debts. Why? It'd be a small price to pay for so-called risk cascades rippling through the system, wouldn't it? They'd certainly rather take a moderate, one-time bailout hit than risk unwinding untold amounts of credit-default swaps. If Germany steps in and backs this debt now (which, by Soros' own count, would include all five PIIGS nations) they throw themselves into the ring with these failing economies. It's a bit like asking credit-worthy mom and dad to put their house up as collateral on a low-interest loan so their loser kid can buy a motorcycle and some new leathers. We all know how THAT would play out, right? Mom and dad would end up homeless after junior wrecks the bike running from the cops, who have come to repossess it for nonpayment, and someone sue-happy gets injured during the chase. Why the hell would Germany willingly do that? So they can save a few banks from the pains of their terrible lending decisions? Screw the banks and screw the euro. Let it die. The euro was a terrible idea from the beginning, and its failures have only become more evident over time. Germany is going to be stuck with a large bill regardless of what it decides to do. Germany can extend endless bailouts to the countries directly, costing it money and extending the crisis another six months. Germany can backstop new loans, which will cost it money. Germany can walk away from the entire situation, which will cost it money (via its own banks failing and needing a bailout). Or Germany can make clear that enough is enough, pay off/write off the German-backed loans and let the PIIGS, and the rest of Europe, fend for itself. It can then go back to the Mark and resume being one of the world's most dominant economies. This is what I recommend. It is clear, or at least it is to me, that Europe needs to reset itself back to individual, state-level currencies. The disparities in social conditions, income, debt, government-styles, and so forth, make maintaining a unified currency across un-unified political states too risky and unwieldy. This is all before you wonder how in the world Europe can manage a unified fiscal policy without a unified, continental/federal government. The need for the euro to finally die is pretty obvious. Why is Soros so interested in propping it up again — especially when, by now, any measures taken to save the euro will be temporary at best. (The currency will die...soon, in my view.) I cannot help but wonder if there is a personal agenda behind Soros' position. Which currency pair is he manipulating for his own benefit? Which bank does he intend to break this time around? Last time it was Soros' scheme that destroyed the Bank of England for billions in profits. Is the old man planning a similar play with the euro? I wouldn't bet against it. And if I were Germany, I wouldn't bet my economy on the old man's ploy. You can reach the author by email john@benzinga.com or on twitter @johndthorpe.