George Soros, one of the most outspoken critics of Germany’s proposed austerity policies to solve the European debt crisis, said the euro is here to stay and will gain as other nations seek to devalue their currencies.
Soros, who made US$1 billion shorting the British pound in 1992, said that while the causes of the euro crisis have not been solved, the acute phase of the turmoil is over.
Yields on the sovereign debt of countries from Spain to Greece have fallen since European Central Bank (ECB) President Mario Draghi announced an as-yet-untapped bond-purchase plan in September last year.
Soros, reiterating his view that austerity is the wrong policy at this time, said the German insistence on tight fiscal and monetary policies means the euro will appreciate as other countries pursue more expansive policies, a situation that may lead to a currency war.
“Currencies have been remarkably stable in the last few years,” Soros said. “Now there is the making of more fireworks, more volatility.”
Soros said last year that the German-led policies risked creating tensions that could destroy the EU.
In a speech in April last year, he said the Bundesbank, Germany’s central bank, was taking steps to limit potential losses if the euro splintered, creating a “self-fulfilling prophecy.”
Bundesbank President Jens Weidmann has denied taking such steps, calling the allegations “ridiculous.”
Weidmann this week criticized moves by Japan’s Prime Minister Shinzo Abe to devalue the yen, saying such measures risked “politicizing” the yen’s exchange rate.
Soros said the extent to which Japan can push its currency lower will be limited by what the US is willing to tolerate.
The momentum is for the “euro to rise and yen to fall,” Soros said. “I generally don’t know how far things go but I can see which way they are going.”
Soros said countries can only grow their way out of excessive debt and should avoid policies that lead to contractions. The US, the world’s largest economy, has “pretty good underlying dynamics,” he said.
“If the ‘fiscal cliff’ and those issues are resolved, and [the] US economy picks up, I think the interest rates are likely to rise,” he said.
Soros, who has a US$21.2 billion fortune, according to the Bloomberg Billionaires Index, said there is “definitely” no near-term risk of credit bubbles, a topic that several delegates at the conference discussed yesterday.
“There is an asset bubble in China in real estate, sustained by lending in the quasi-banking system,” he said.
“The real-estate market in China is rising again. That, I think, is a potential bubble because of the source of financing,” he added.