Soros On Europe: Iceberg Dead Ahead

Tyler Durden's picture

George Soros has been a busy man the last few days. Appearing at the INET Conference a number of times and penning detailed articles for the FT (and here at Project Syndicate) describing the terrible situation in which Europe finds itself - and furthermore offering a potential solution. Critically, he opines, the European crisis is complex since it is a vicious circle of competing crises: sovereign debt, balance of payments, banking, competitiveness, and structurally defective non-optimal currency union. The fact is 'we are very far from equilibrium...of the Maastricht criteria' with his very clear insight that the massive gap, or cognitive dissonance, between the 'official authorities' hope and the outside world who see how abnormal the situation is, is troublesome at best. Analogizing the periphery countries as third-world countries that are heavily indebted in a foreign currency (that they cannot print), his initial conclusion ends with the blunt statement that "the euro has really broken down" and the ensuing discussion of just what this means from both an economic and socially devastating perspective: the destruction of the common market and the European Union and how this will end in acrimonious recriminations with worse conflicts between European states than before.

However, he offers some hope and a potential solution to the fact that these nations have implicitly handed their 'seignorage rights' to the ECB, in the potential for a balance between fiscal austerity and deflation (or at minimum new rules that would remove to a greater extent the vicious circle of the fiscal compact as deflationary debt trap). The punchline being the creation of an SPV that 'owns the ECB's seignorage rights - estimated to be worth $2-3 trillion' that could explicitly be used to acquire bonds without violating the Lisbon Treaty. The sad truth of this admittedly smart financial engineering (pretend austerity and optically no money printing when exactly that is occurring) is that the Bundesbank will never agree to it (as implicitly it ends up at the foot of the German taxpayer to a greater or lesser extent) even though, as he concludes, the future of the Euro is a political one and thus "beyond the Bundesbank's competence to decide." Just as we noted back in December and reiterated here as likely given TARGET-2 imbalances (also confirmed by Deutsche Bank), Soros points out that the Bundesbank has "started taking measures to limit the losses that it would sustain in case of a
breakup."
and this creates a self-fulfilling prophecy that markets are reflecting.

A must-watch harsh reality check on Europe and a man trying to find answers when the authorities remain blind to the endgame...

 

Project Syndicate: Reversing Europe’s Renationalization

George Soros

NEW YORK – Far from abating, the euro crisis has taken a turn for the worse in recent months. The European Central Bank managed to relieve an incipient credit crunch through its long-term refinancing operation (LTRO)...

The fundamental problems have not been resolved; indeed, the gap between creditor and debtor countries continues to widen. The crisis has entered what may be a less volatile but potentially more lethal phase.

At the onset of the crisis, the eurozone’s breakup was inconceivable...

 

If [ECB encumbrance] continues for a few more years, a eurozone breakup would become possible without a meltdown – the omelet could be unscrambled – but it would leave the creditor countries’ central banks holding large, difficult-to-enforce claims against the debtor countries’ central banks.

The Bundesbank has become aware of the danger. It is now engaged in a campaign against the indefinite expansion of the money supply, and it has started taking measures to limit the losses that it would sustain in case of a breakup. This is creating a self-fulfilling prophecy: once the Bundesbank starts guarding against a breakup, everybody will have to do the same. Markets are beginning to reflect this.

The Bundesbank is also tightening credit at home. This would be the right policy if Germany was a freestanding country, but the eurozone’s heavily indebted member countries badly need stronger demand from Germany to avoid recession. Without it, the eurozone’s “fiscal compact,” agreed last December, cannot possibly work. The heavily indebted countries will either fail to implement the necessary measures, or, if they do, they will fail to meet their targets, as collapsing growth drives down budget revenues. Either way, debt ratios will rise, and the competitiveness gap with Germany will widen.

Whether or not the euro endures, Europe faces a long period of economic stagnation or worse. Other countries have gone through similar experiences. Latin American countries suffered a lost decade after 1982, and Japan has been stagnating for a quarter-century; both have survived. But the European Union is not a country, and it is unlikely to survive. The deflationary debt trap is threatening to destroy a still-incomplete political union.

The only way to escape the trap is to recognize that current policies are counterproductive and change course. I cannot propose a cut-and-dried plan, but three observations stand out. First, the rules governing the eurozone have failed and need to be radically revised. Defending a status quo that is unworkable only makes matters worse. Second, the current situation is highly anomalous, and some exceptional measures are needed to restore normalcy. Finally, the new rules must allow for financial markets’ inherent instability.

...

Most importantly, some extraordinary measures need to be invented to bring conditions back to normal. The EU’s fiscal charter compels member states annually to reduce their public debt by one-twentieth of the amount by which it exceeds 60% of GDP. I propose that member states jointly reward good behavior by taking over that obligation.

The member states have transferred their seignorage rights to the ECB, and the ECB is currently earning about €25 billion ($32.7 billion) annually. The seignorage rights have been estimated by Willem Buiter of Citibank and Huw Pill of Goldman Sachs, working independently, to be worth between €2-3 trillion, because they will yield more as the economy grows and interest rates return to normal. A Special Purpose Vehicle (SPV) owning the rights could use the ECB to finance the cost of acquiring the bonds without violating Article 123 of the Lisbon Treaty.

Should a country violate the fiscal compact, it would wholly or partly forfeit its reward and be obliged to pay interest on the debt owned by the SPV. That would impose tough fiscal discipline, indeed.

By rewarding good behavior, the fiscal compact would no longer constitute a deflationary debt trap, and the outlook would radically improve. In addition, to narrow the competitiveness gap, all members should be able to refinance their existing debt at the same interest rate. But that would require greater fiscal integration, so it would have to be phased in gradually.

The Bundesbank will never accept these proposals, but the European authorities ought to take them seriously. The future of Europe is a political issue, and thus is beyond the Bundesbank’s competence to decide.

 

 


And incidentally speaking of the Bundesbank, recall back in December Zero Hedge's view on the endgame via "Has The Imploding European Shadow Banking System Forced The Bundesbank To Prepare For Plan B?" where we said, focusing on the TARGET2 issue :

 

the Bundesbank, if disambiguated from the ECB, where it currently is accountable for funding a major portion of deficit nations' funding deficiency, would regain its status as the world highest quality monetary institution. And going back to the beginning, it is the Bundesbank which is effectively depleting "good money" in exchange for "bad" either in the form of undervalued collateral through the repo markets, or soon to be devalued fiat.

 

Here one has to keep in mind the primary prerogative of the Buba - keep inflation low. If that means detaching from a failing currency, or halting asset-liability matching in which it hands out good money in exchange for worthless assets, so be it.

 

Which is why another interpretation of the ECB's proposal is not to bring the ECB as a lender of only resort closer to the peripheral, deficit nations, but to commence proceedings for severing the umbilical cord of the Bundesbank with a Eurozone which is doomed in all but the most optimistic eyes. Bringing us to our question: for anyone wondering what the future of the Eurozone is, should they merely observe what steps  the German central bank is stealthily starting to take. Because if indeed the Buba wants to have as little as possible with Europe, what does that mean for the EUR, and for Europe itself?

Four months later, here comes Deutsche Bank's Thomas Mayer with "Why the Buba Wants To Exit." Excerpts (full link):

Why the Buba wants to exit

 

Recent data illustrate the above analysis. For the last year, more than three quarters of ECB loans have gone to banks in Southern European countries and Ireland. More recently, the liberal use of long-term ECB loans in France and Germany has temporarily reduced the share of the GIIPS countries in ECB lending. At the same time, the positions of national central banks in the euro area’s interbank payment system Target 2 show that these loans have helped to fund cumulated balance-of-payments deficits of the non triple-A rated countries versus the triple-A rated countries (Germany, Netherlands, Finland and Luxembourg). The latter country group has lent the former so far more than EUR900bn (Table 1). As long as the liberal supply of ECB funds to the countries with balance-of-payments deficits continues, the Target positions are likely to increase further. Until recently, liquidity flowing from the balance-of-payments deficit countries to surplus countries tended to be re-deposited at the national central banks of the latter. However, as Chart 2 for the case of Germany shows, liquidity has started to flow out into the non-financial sector (with the German banking sector turning again into a net debtor to the Bundesbank).

 

The case for exiting

 

By mid-year governments are scheduled to have completed the new EMU governance structure, including a new treaty on fiscal policy and a permanent crisis management mechanism. According to the governments, this is it. No further measures are presently being contemplated. Against this background, the recent suggestion by the President of the Bundesbank that the ECB begin a gradual exit from its non-standard measures and thus to raise pressure for balance sheet adjustment seems only logical. As of mid-year it is up to  governments to restructure or unwind insolvent banks and to the permanent crisis management mechanism to provide adjustment funding to governments and banks, when needed. The present dual and contradictory support scheme—conditional lending under IMF/EU adjustment programmes and unconditional, unlimited lending under the ECB’s special refi operations—ought to be reconciled and merged into a unified support scheme.

 

It is, of course, possible that the new EMU architecture will not be able to deal with the remaining adjustment challenges. Even after its recent extension to some EUR800bn, the combined resources of the EFSF / ESM are unlikely to be sufficient to fund Italy or Spain in case markets shut down for these countries. But this would require further repair of the EMU architecture and could not justify an open-ended involvement of the ECB in propping up insolvent banks or governments. As we have argued before, we would favour the transformation of the ESM into a true European Monetary Fund with the mandate to implement and fund adjustment programmes for countries, facilitate debt restructuring for insolvent countries, and deal with systemically relevant banking sector problems. As part of a unified support scheme, this EMF would have access to ECB credit as a measure of last resort to deal with systemically risky liquidity crunches, whereby the final decision to extend credit would lie with the ECB.

 

Conclusions

 

The ECB’s non-standard monetary policy measures were taken to deal with problems in the financial sector and not to extend monetary policy easing beyond interest rate cuts, as was the case in the US and UK. Hence, these measures should logically only be continued as long as they promote efficient adjustment in the financial sector. The present regime of fixed rate, full allocation refinancing operations  tends to ease the adjustment burden in the financial sector of countries with internal and external deficits and to shift the costs of rebalancing the balance of payments of EMU member countries to balance of payments surplus countries. Relative prices are adjusted by pushing prices in the surplus countries up without exerting downward pressure on prices in the deficit countries. With a new fiscal pact and permanent crisis management mechanism in place as of the middle of this year, it is now up to governments to engineer a more symmetrical adjustment. Should the new EMU architecture prove insufficient, governments should take the necessary additional steps and refrain from enlisting the ECB in making up for these deficiencies, in our view.

Which, alas won't happen, and the Bundesbank will be even more on the hook. Just as we further elaborated in "Explaining The European €2.5 Trillion Liquidity Catch 22 Closed Loop." So yeah: tin foil hat conspiracy and all that jazz.

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donis's picture

he's just a pickled turd

theMAXILOPEZpsycho's picture

Quite possibly the greatest investor in history; if only we had more of his kind I feel humanity would be in a far better state...

flacon's picture

If GOLD had been used as collateral in a bilateral exchange agreement between countries none of this would have happened because those "rational expectations" would never have existed in the first place. 

 

FUCK PAPER, or it will FUCK YOU!

flacon's picture

I mean really... does George Soros really beLIEve "george soros" when he speaks? He's talking about "Quantative Easing" and saying that in Europe it has never been done..... how many times has there been hyperinflation in Europe? Loads of times! Either Soros is one stupid monkey or he is a liar. 

(7:00 - 8:00)

Michael's picture

The cockroaches are running out of places to hide their ill-gotten gains. Their whole shitty system is going to collapse around them and there's nothing they can do about it, thank God.

caconhma's picture

Once again, the German economic miracle is coming to the end. The present german leaders and political parties are just another sham for the City Zionist Banking Mafia families.

Just look at the major "German" banks. None of them is German.

AldousHuxley's picture

Looks like Soros is becoming a ghost.

 

Just say the truth Soros....Europe without her colonial exploitations is nothing but museums and tourist traps for new money.

 

Global imperialism is America's game now.....until China take over with their STEM hacker army

 

caconhma's picture

AldousHuxley

It is very interesting. Back in late 1930s, J. Stalin said that without colonies the West would collapse.

Stalin also hated the Zionist Banking Mafia. The purpose of the 1938 secret agreement between  Stalin & Hitler was to destroy the Banking Mafia. Unfortunately, the Stalin world domination intentions led to the WW II.

ebworthen's picture

So you're saying fleas, ticks, lice, bedbugs, mosquitoes, and intestinal parasites are good for a body?

flacon's picture

They stimulate the 7 year itch.

markar's picture

Looks like we have 2 mad maxes on this thread

hardcleareye's picture

 Soros is an intriguing charter.... and compared to other men of his ilk, (various Robber Barons and bankers in history) he is unique, kinda of a black sheep.

IMO people who stay in the "wealth accumulation game" till they have amassed more resources than they could use in 100 or more life times are NOT "great" or "good" people.

LetThemEatRand's picture

Once you get into the hundred million range or actually a lot less for most people, you really can't spend it fast enough to need more.  A lot more money than that has only one major benefit, which is power.  When you have billions, you can make things happen on a national or even international scale.  People who crave power at that level are generally sociopaths, or at least complete assholes. 

AldousHuxley's picture

that's because capitalism places capital as the ultimate reward.

society needs to figure out something other than capital for her elites, so people can move on to another game once they have enough cash points.

Banksters are bad role models. These psychos work crazy hours into retirement just so that they can get another million into their 8 figure net worth while missing out connecting with grandchildren, wives, family, society, giving back, etc.

that's why europe still maintains royalty. Rich, powerful, and famous can move onto shaping society's culture, traditions, moral ideals rather than spending your 60th birthday blabbering some bullshit at Davos world economic forum.

 

Thus America has tons of billionaires but shit culture, shit society, shit morals, shit food, shit music, etc. and elites spend their time and money in Europe instead.

 

Soros, you are old. plenty of money but limited time to live. Economic forums are the wrong place to pursue self-actualization.

CH1's picture

capitalism places capital as the ultimate reward.

LOL... not how I define capitalism,,, not even close.

kridkrid's picture

Then define it for us. Not baiting you, I'm genuinely interested. I fear that no matter how well intended we might wish for capitalism to be, that Marx was most likely right about where it ends up. Though capitalism with sound money is vastly different from finance fascism which is what we have now. Anarcho-something is the right answer, I think, but not sure how we get there. Why can't we all just get along.

dogbreath's picture

in history it seems the rich and powerful left art and architecture as monuments to their passing.  what will this guy leave behind?

Tapeworm's picture

Yes, and just whom in the Euro scheme has had more input than this maggot? His good cop routine was dead with his Color Revolutions and the rest that would pay his bets on gombit failure.

 Soros must be the first to get the treatment that he prescribes for all other gombit maggts.

 Talk the book forever.

agent default's picture

Soros made his money with Jim Rogers in the Quantum commodity hedge fund or something like that. Rogers was the analyst and Soros the trader.  Rogers was the investing genius, Soros just happened to be there.  He is not that good. In fact he is pretty crap at it.

deflator's picture

Soros is most famous for his single-day gain of US$1 billion on September 16, 1992, which he made by short selling the British pound.

Read more: http://www.investopedia.com/terms/g/soros.asp#ixzz1s3yQPQPM

caconhma's picture

Soros is just a Rothchild banking family agent. One of their front-men. It is all.

More that 100 years ado, JP Morgan has played the similar role.

The same is true for our belove FED Chief Bernanke. He is not running the show. He is just a front-man for the real FED owners.

 

nmewn's picture

To me...Soros is most famous for selling his soul to the devil at a very early age.

/////////////////////////////////////////////////////////////

KROFT: (Voiceover) And you watched lots of people get shipped off to the death camps.

Mr. SOROS: Right. I was 14 years old. And I would say that that's when my character was made.

KROFT: In what way?

Mr. SOROS: That one should think ahead. One should understand and–and anticipate events and when–when one is threatened. It was a tremendous threat of evil. I mean, it was a–a very personal experience of evil.

KROFT: My understanding is that you went out with this protector of yours who swore that you were his adopted godson.

Mr. SOROS: Yes. Yes.

KROFT: Went out, in fact, and helped in the confiscation of property from the Jews.

Mr. SOROS: Yes. That's right. Yes.

KROFT: I mean, that's–that sounds like an experience that would send lots of people to the psychiatric couch for many, many years. Was it difficult?

Mr. SOROS: Not–not at all. Not at all. Maybe as a child you don't–you don't see the connection. But it was–it created no–no problem at all.

KROFT: No feeling of guilt?

Mr. SOROS: No.

KROFT: For example that, 'I'm Jewish and here I am, watching these people go. I could just as easily be there. I should be there.' None of that?

Mr. SOROS: Well, of course I c–I could be on the other side or I could be the one from whom the thing is being taken away. But there was no sense that I shouldn't be there, because that was–well, actually, in a funny way, it's just like in markets–that if I weren't there–of course, I wasn't doing it, but somebody else would–would–would be taking it away anyhow. And it was the–whether I was there or not, I was only a spectator, the property was being taken away. So the–I had no role in taking away that property. So I had no sense of guilt.

The man has no soul...no guilt...no shame...no remorse...just the cold calculus of his own survival at any cost to others.

LetThemEatRand's picture

Textbook narcissist.  And he made a fortune.  Go figure.....

nmewn's picture

He's a very cunning and ruthless man.

Someone I would not turn my back on in a room full of people, even though everything I owned was just the clothes on my back.

Calmyourself's picture

But good news is he gives lots and lots of money to your leftist buddies..

Calmyourself's picture

But good news is he gives lots and lots of money to your leftist buddies..

BoNeSxxx's picture

Narcissist?  Sure

Textbook? Psychopath is much closer to the mark.

Most pyschopaths are successful as numerous studies have illuminated over the years.  No surprise there.  They have no guilt, no empathy, and an insatiable need for more power.  They shit on those below them and only respect those with more power than them.

If they don't go the 'Ted Bundy' route, they go the George Soros route (or GS wannabe route).  The vast majority of successful financiers, bankers, and politicians test positive for psychopathy.  How else could you steal pensions, empower the ponzi, lie to clients, and take short positions on events that your energy could otherwise be spent trying to prevent?

George Soros can't die fast enough for me... but there are legions behind him.

LetThemEatRand's picture

Nmewn:  And complete hypocrite by which I mean you, also says later in this thread:  "I don't believe anyone holds the German people in contempt of anything (I don't anyways). Will we (the Irish-Scot-German...its a long line, I'm a mutt myself...lol) crack macabre jokes and dark humor?...yes.

It is the willingness of people (any people) to follow an insane leader doing or saying insane things that we (I) marvel and shudder at."

So basically Soros was evil for not opposing the German people, who you do not hold in contempt in the least.   Do you ever actually listen to yourself?  

nmewn's picture

No, you fucking imbecile.

I hold Soros in contempt for not opposing the nazis which he understood then and understands to this very day as evil. Read the transcript and understand what he is saying to the world about himself. What made him what he is today, he takes the easy way out...always.

You really sittin around sayin every German who had to swear allegiance to "Der Fuhrer" (or die or be imprisoned by his law) were actual nazis?

Only a socialist douchebag scratching around for guilt deliverance would say such a thing...and you just did.

Calmyourself's picture

You frankly deplete my supply of +1... Bravo

LetThemEatRand's picture

Nice try.

He was fourteen, and you hold him to the standard of standing up to the Nazis.  But you forgive all of the adult Germans because they were just following orders from the Nazis. You have exposed yourself like your friend Econonics666 while he supports himself with government handouts.

nmewn's picture

You did not recognize good & evil at fourteen?

And what part of..."It is the willingness of people (any people) to follow an insane leader doing or saying insane things that we (I) marvel and shudder at."...are you having a problem processing in your brain...exactly?

He (Soros) took a job with the "Jewish Council" voluntarily. Do you know what that organization was in Hungary at the time? If you don't, he certainly did after his father explained it to him when he showed his father a list of names. The names on the list were Hungarian-Jewish lawyers.

It was well after that, that he posed as a Catholic and a "godson" to another to escape scrutiny himself.

Were the names on his list (in your opinion) good or evil LTER?...I expect an answer to this question. It gives me insight to your morality...so answer carefully.

And don't think that I don't know what this is really about you snake...in your rush to find fault with me for past conflicts between us in this forum, you wind up defending purposeful, premeditated evil. You take this position (no doubt) simply because you and he (and Nazis) spring from the same poisoned well of thought and philosophy.

In short, I understand the difference between Nazis/Fascists & run of the mill Germans quite well. You apparently do not.

////////////////////////////////

No answer eh?...maybe you can get another ID to answer for you ;-)

TrulyBelieving's picture

Humanity most certaintly would be in a far worse state if there were more of Soros' kind. His only concern is to enrich himself, with no regard for the welfare of anyone but himself. Humans suffer in direct relation to how much power and control Soros and his ilk have. No thanks, not interested in anything he has to say, or anyone, like MAX, that is so dim-witted to think soros is a good for humankind.

CompassionateFascist's picture

Hardly anyone here thinks Soros is "good". But he has access to powers far greater than himself. Therefore, he's worth listening to. Ditto Brzezinski and others of this Type.

oldschool's picture

So, because he has "access to powers" he's "worth listenting to"?  Do you really believe that he or those powers are going to tip you off?  What, out of the goodness of their hearts?

funthea's picture

Have you bumped your god damn head?

Hell has a special place for the likes of Soros.

cjbosk's picture

And a psycho you are, indeed! 

The only blessing is that Soros wasn't ever an investor, and as such will not tarnish the trade (pun intended).  Furthermore, we won't have more of his kind anytime soon because the OWS crowd can't make 5 bucks let alone 15 billion.  And lastly, he's on his death bed, one foot in grave et. al. so I'm not going to lose any sleep over this guy, powdered sugar or not...a turd is just that, a turd.

mc_LDN's picture

Soros s**** on the ashes of humanity. His world plan is tyrannical and global in scope. He has no compunction about levelling states and so too the good efforts of humanity. Soros and his "Open Society" framework are ultimately tied in with all the other tyrants he plays Heads to the Bushes Tails on the same coin. Mark my words there all in this together shepperding the sheep as the wolves they are on left amd right.

Ahmeexnal's picture

nothing new on his insight.
12 years ago, everyone and their dog knew that the euro project would end in pan-european all out war.

DoChenRollingBearing's picture

Well I did not know that 12 years ago.  Seemed like a worthwhile experiment.

2008 showed us (me) reality.

Sudden Debt's picture

Old farts stink twice as much

DoChenRollingBearing's picture

LOL, but I am NOT going to overthink that one...

James_Cole's picture

What website is ZH cross-posted on to get all these nutbars from? ZH comments section has somehow been turned over to brain dead Glenn Beck apostles.

valley chick's picture

nutbars? brain dead Glenn Beck apostles?  There are many, many sites to research soros ..recommend you read them asshole.

James_Cole's picture

There are many, many sites to research soros ..recommend you read them asshole.

A valuable use of one's time I'm sure.

Here's a novel idea - how about commenting on the validity of the ideas presented in the article rather than some idiot conspiracy theory completely unrelated to the post (if the post had been attributed to "anonymous trader" doubtless you pea brains wouldn't be going on about Soros the Anti-Christ or whatever other stupid ideas about him as that is, at best, totally separate from the opinion he is expressing).

grey7beard's picture

>> how about commenting on the validity of the ideas presented in the article rather than some idiot conspiracy theory completely unrelated to the post

It's not going to happen.  As soon as I saw Soros in the heading I knew it would be a right wing looney fest in the comments sections.  Not that ZH hasn't become "the" spot for right wing loonies to hang anyway. 

StychoKiller's picture

You're looking for fish amongst the treetops...