Strong words from probably the greatest trader of the 20th century as the “aylites” gather in Davos and make soothing noises, George Soros calls it like he sees it.
From an interview at the NY Review:
Gregor Peter Schmitz: Merkel used to be very cautious and deliberate. People could trust her. But in the migration crisis, she acted impulsively and took a big risk. Her leadership style has changed and that makes people nervous.
Soros: That’s true, but I welcome the change. There is plenty to be nervous about. As she correctly predicted, the EU is on the verge of collapse. The Greek crisis taught the European authorities the art of muddling through one crisis after another. This practice is popularly known as kicking the can down the road, although it would be more accurate to describe it as kicking a ball uphill so that it keeps rolling back down. The EU now is confronted with not one but five or six crises at the same time.
Schmitz: To be specific, are you referring to Greece, Russia, Ukraine, the coming British referendum, and the migration crisis?
Soros: Yes. And you haven’t even mentioned the root cause of the migration crisis: the conflict in Syria. Nor have you mentioned the unfortunate effect that the terrorist attacks in Paris and elsewhere have had on European public opinion.
Merkel correctly foresaw the potential of the migration crisis to destroy the European Union. What was a prediction has become the reality. The European Union badly needs fixing. This is a fact but it is not irreversible. And the people who can stop Merkel’s dire prediction from coming true are actually the German people. I think the Germans, under the leadership of Merkel, have achieved a position of hegemony. But they achieved it very cheaply. Normally hegemons have to look out not only for their own interests, but also for the interests of those who are under their protection. Now it’s time for Germans to decide: Do they want to accept the responsibilities and the liabilities involved in being the dominant power in Europe?
That is the key denominator of the German mercantilism model, post reunification. It has been a very cheap ride for the Germans at the expense of the rest of Europe (mainly the South).
The future of Europe remains in their hands, or it will taken away from them by extremists, just as it happened in the past. This does explain the ECBs hypervigilance against inflation, even if it puts a light under extreme left and right wing factions across the depressed South.
Tonights ECB meeting won’t change things – it will take more than monetary policy to fix this endemic problem, and Soros knows that.
Soros: The Soviet Union has been replaced by a resurgent Russia and the European Union has come to be dominated by the forces of nationalism. The open society that both Merkel and I believe in because of our personal histories, and that the reformers of the new Ukraine want to join because of their personal histories, does not really exist. The European Union was meant to be a voluntary association of equals but the euro crisis turned it into a relationship between debtors and creditors where the debtors have difficulties in meeting their obligations and the creditors set the conditions that the debtors have to meet. That relationship is neither voluntary nor equal.
The migration crisis introduced other fissures. Therefore, the very survival of the EU is at risk.