Billionaire investor George Soros said it was “probably inevitable” that a mechanism would be put in place to allow weaker economies to exit the euro.
“There’s no arrangement for any countries leaving the euro, which in current circumstances is probably inevitable,” Soros, 80, said at a panel discussion in Vienna on Sunday on whether liberal democracy is at risk in Europe.
“We are on the verge of an -economic collapse, which starts, let’s say, in Greece, but it could easily spread. The financial system remains extremely vulnerable,” he said.
Greece is one of three eurozone members to have sought international bailouts amid the sovereign debt crisis.
“I think most of us actually agree that Europe’s crisis is actually centered around the euro,” Soros said. “It’s a kind of financial crisis that is really developing. It’s foreseen. Most people realize it. It’s still developing. The authorities are actually engaged in buying time and yet time is working against them.”
The euro was created in 1999, with 11 member states — Germany, France, Italy, Belgium, the Netherlands, Luxembourg, Finland, Austria, Portugal, Spain and Ireland. Greece was the 12th country to adopt the shared currency in 2001, while Estonia is the newest member of the eurozone, joining in January.
Soros, chairman of Soros Fund Management LLC with about US$28 billion in assets, also expressed concern that the currency union would dissolve on Jan. 26 at the World Economic Forum in Davos, Switzerland.
He said then that European policy makers must address their two-speed economy or risk the euro collapsing, though he added this was unlikely to occur.
EU leaders have vowed to stand behind Greece as long as Greek Prime Minister George Papandreou, who won a vote of confidence last week, pushes through his 78 billion euro (US$111 billion) package of budget cuts and asset sales. Investors are concerned a default would trigger contagion that would engulf other eurozone members including Ireland, Portugal and Spain.
Europe’s leaders should look for alternative strategies to solve the debt crisis, Soros told the Vienna panel, which also included Former Belgian prime minister Guy Verhofstadt.
Because the “survival of the EU is of vital interest to us all,” there’s a need for a “Plan B,” he said, explaining that this could include EU-wide taxes, a “banking system guaranteed by European institutions, not a bunch of national banking systems,” or a financial transaction tax.