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Soros Tells Germany to Lead or to Leave the Euro: He’s Right

Politics / Eurozone Debt Crisis Sep 10, 2012 - 01:22 PM GMT

By: Andrew_Butter

Politics George Soros was interviewed by the Financial Times yesterday, his message, prior to a speaking engagement the next day was that if Germany wanted to continue to doggedly promote a hard-currency anti-inflation, pro-austerity stance, then they should leave the Euro.

This would cause the Euro to depreciate against the currency the Germans adopted, and probably against the dollar and other currencies. But the austerity measures that are driving the millions of Greeks, Italians, Spanish and Portuguese workers to the dole queue, could be scaled down.

What “the rest” of Europe needs right now is not austerity, they need reform. Particularly labor reform; to get to that, they need time, my son-in-law is Italian, he had a “part-time-job” for five years, he loved it and his employers loved him and he was very good at his job. But at the end of that period his company let him go, because if they had kept him, he would have become a permanent employee…basically impossible to fire, life-time employment.  I couldn’t believe it, but it’s true, and that’s what happens all over the PIIG countries, plus there are unions, and monopolies…and a lot of corruption, which stifle the private sector.

But to address that problem, needs time and political resolve. Trashing what you got by austerity is not necessarily the way forwards, and it is certainly not a way to get rid of the corruption, vested interests, tax-evaders, and loony unions …those guys still have jobs; they engineered it that way, they don’t care if 50% of the population under-25 is unemployed.

Germans are fond of blaming the PIIGS for the problem. But just as the lenders who handed out mortgages to un-creditworthy home-owners in USA are just as much to “blame” for the problems that followed, German, and to some extent French banks, supported by their regulators, are just as much to “blame” for the excessive loans made to un-creditworthy PIIG governments, often to directly and indirectly finance a trade deficit, and to help keep corrupt regimes in power.

Germans sold goods and services to PIIGS on credit denominated in Euro’s and the German economy prospered greatly; on the assumption enshrined on the balance-sheets, that the PIIGS would pay their bills, plus the interest. But now the PIIGS can’t/won’t pay…whose problem is that?

Goes back to the gag…”if you owe a bank $50,000 you got a problem, if you owe them $50 million, they got a problem”.

If Germany leaves the Euro, then the loans they made in Euros can be paid back in vastly depreciated Euros and the PIIGS have a chance. The alternative is Germany keeps the Euro, and the PIIGS are bankrupt, their credit-score is forever trashed, and they have no chance.

The Germans need to make a choice, like the Merchant of Venice found out;  just because you have a contract does not mean you come out ahead, or that you were right.

The vacillating has to stop, the uncertainty is bad for business, it sidelines those who would work for change to a more robust free-market system, and it rewards the incumbents who created the problem in the first place.

By Andrew Butter

Twenty years doing market analysis and valuations for investors in the Middle East, USA, and Europe. Ex-Toxic-Asset assembly-line worker; lives in Dubai.

© 2012 Copyright Andrew Butter- All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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