SPIEGEL Interview with George Soros
'Merkel Is Leading Europe in the Wrong Direction'
SPIEGEL: German Chancellor Angela Merkel is praised globally as "Mrs. Europe" and at home she is more popular than ever in polls -- partly thanks to her strong refusal to constantly pledge more German money to the euro rescue effort. Why do you feel her policies are wrong?
Soros: I admire Chancellor Merkel for her leadership qualities, but she is leading Europe in the wrong direction. To solve the euro crisis, I advocate a two-phase policy -- which is first austerity and structural reforms as Germany implemented them in 2005, but then also a stimulus program. If you do not provide more stimulus in Europe, you will push many European countries into a deflationary debt spiral. And that would be extremely dangerous.
SPIEGEL: Are the new austerity guidelines for countries like Spain, Italy or Greece too tough?
Soros: They create a vicious circle. The deficit countries have to improve their competitive position vis-a-vis Germany, so they will have to cut their budget deficits and reduce wages. In a weak economy, profit margins will also be under pressure. This will reduce tax revenues and require further austerity measures, creating a vicious circle. Markets do not correct their own excesses. Either there is too much demand or too little. This is what the economist John Maynard Keynes explained to the world, except that he is not listened to by some people in Germany. But Keynes explained it very well -- when there is a deficiency of demand, you have to use public policy to stimulate the economy.
Soros: This is a very righteous position taken by Berlin. But it is not exactly correct, because Germany was among the first countries to break the euro-zone rules.
SPIEGEL: Germany violated the three-percent limit for the budget deficit a few times, whereas Greece has systematically lied about its balance sheet. Are you really trying to compare the two?
Soros: The Germans were not exactly innocent. Everybody broke the Stability Pact rules, which means that there were not enough effective rule enforcement mechanisms in place.
SPIEGEL: Why do you think it is the right thing to pump even more money into the crisis countries?
Soros: Let's distinguish between Greece and the rest of the euro zone. Greece is a special case -- one in which everything that could have gone wrong did. The Greeks atrociously abused the advantages of European Union membership. When (former) Greek Prime Minister Georgios Papandreou was elected with a reform agenda and revealed the abuses of the previous government, he had to pay interest at penalty rates in order for Greece to be rescued. He did his best but it was not good enough and the political dynamics have been deteriorating ever since. Powerful business groups want to pay their tax arrears in drachmas, not in euros, and they own many newspapers. The rest of Europe behaved much better. Spain, for instance, ended the real estate boom with a lower debt ratio and also now has a better supervised banking system than Germany.
SPIEGEL: The German government has argued that it is only through high interest rates that the crisis states can be compelled to undertake tough reforms. If the euro states provide more aid, then interest rates sink and the pressure to reform subsides. What's wrong with that?
Soros: It is not the failures of Italian or Greek politicians that are currently the greatest problem, rather the high penal interest rates. The example of Greece demonstrated this. Germany has mishandled the rescue operation by providing the bailout at penal interest rates, which then led to an increase in the indebtedness of Greece. That is why today Greece is beyond rescue.
SPIEGEL: But it was the abundance of "cheap money" that was at the core of the last financial crisis. Would we not repeat the same mistake if we pledged billions of fresh money to countries in crisis?
Soros: I know it sounds as though we are repeating exactly the same mistake. But let's compare the situation on the global financial markets to a car that is skidding. When a car is skidding, you must first turn the wheel in the same direction as the skid. And only when you have regained control can you then correct the direction. We went through a 25-year boom in the global economy. Then came the crash in 2008. The financial markets actually collapsed, and they had to be put on artificial life support through massive state intervention. The euro crisis is a direct continuation or consequence of the 2008 crash. This crisis isn't over yet and we will have to spend more state money in order to stop the skidding. It is only afterward that we can change the direction. Otherwise we will repeat the mistakes that plunged America into the Great Depression in 1929. Angela Merkel simply doesn't understand that.
SPIEGEL: Through your funds, you have invested many billions in the financial markets. One could be forgiven for suspecting that the advice you give about the euro crisis might be based on your own interests.
Soros: Look, I can understand all the suspicions, and I think it is a legitimate question. However, I have made it a principle to give advice that does not serve my personal interest but rather the common interests. I think the record is clear on that point.
SPIEGEL: But you push for lower interest rates or access to "cheap money," for instance. Both steps would help you as an investor.
Soros: That is true. But it would also help all other investors and it would help to preserve the global financial system. In that sense, I am concerned about my own interests. But I am also retired and no longer actually manage the fund. Nevertheless, I think that I perhaps understand the financial system better than some of the people who are in charge. So, as a citizen, I feel justified in trying to give advice. I am not arguing for the policies I support to make a profit. I make it a principle in my advocacy to put the public good before my private interests.