E.U. May Crack Over Ukraine, Soros Warns
The legendary Hungarian-American investor, George Soros, told Handelsblatt that the European Union and euro currency zone could unravel if member countries can't agree on a unified response to Russia's aggression in Ukraine.
The European Union and the euro could founder if its members don’t stand together against Russia, George Soros said Tuesday in Düsseldorf. Source: Frank Beer for Handelsblatt George Soros, one of the world’s richest men and a tireless defender of Central European democracy, warned that the European Union, a mainstay of post-war stability, could dissolve and unravel if the 28-country bloc can’t agree on a common response to Russia’s aggression in the Ukraine.
Speaking on Tuesday in Düsseldorf at a dinner sponsored by Handelsblatt, Mr. Soros, an 84-year-old Hungarian-American who survived the Holocaust and then fled the Soviets, said the future of the European alliance of nations stretching from Ireland to Estonia could hang in the balance.
Russia this year seized the Crimean peninsula from the Ukraine and is now arming and supporting a separatist movement in the eastern part of the country, an action which has been met with economic sanctions from the United States and the European Union.
The sanctions have hurt Russian and European trade, and have led to a slowdown of economic growth on the Continent. In Germany, some business and political leaders are now calling on political leaders to abandon the E.U. sanctions.
In other parts of Europe, the call is growing louder for a softer line with Russia.
“I think the real question is whether the European Union will break up over Russia," Mr. Soros told 400 people at a dinner held in a Düsseldorf museum by the German financial publishing group. “The E.U. is under threat from Russia... The E.U. is broken, and it is not functioning."
Mr. Soros, a legendary investor and hedge fund manager whom Forbes estimates is worth $24 billion, warned of an E.U. breakup and a breakup of the euro single currency zone, which includes 18 E.U. countries, including Germany.
In an interview with Gabor Steingart, the Handelsblatt publisher and the son of a Hungarian emigrant to Germany, Mr. Soros urged Europeans to stand together against Russia, which he said is bent on reasserting its military hegemony over parts of the Continent.
“Wake up Europe," said Mr. Soros, who had just returned from a visit to Ukraine. “There is now an alternative to the European Union, a different way to run a state through use of force. I’m talking about (Vladimir) Putin’s Russia. The reason he is making headway is because of the failure of the E.U."
The son of Jewish parents in Budapest, Mr. Soros survived the Nazi occupation and left the Hungarian capital and Soviet control in 1947 as a 17-year-old for Britain, where he attended the London School of Economics before emigrating to the United States.
Western economic sanctions against Russia, which are limiting the ability of Russian businesses to obtain financing on the global market, are a necessary evil, Mr. Soros said. He lauded the German chancellor, Angela Merkel, for supporting the E.U. penalties.
“I think Angela Merkel has proven herself to be a true European stateswoman in recognizing the danger that Putin represents," Mr. Soros said.
The sanctions, however, are helping Russian hardliners close to President Putin consolidate power and influence in the Kremlin, which in turn is sharpening and stiffening Russia’s response to Western penalties, he said. Some oligarchs unhappy with the worsening situation are sending their families abroad and preparing for their own exits, he said.
In many cases, though, any assets they leave behind are being taken over by Russian hardliners, which is worsening the spiral of recrimination with the West, Mr. Soros said.
“The sanctions are an evil but they are a necessary evil and are having the very bad effect in Russia of actively strengthening Putin’s role," Mr. Soros said. “There is taking place a concentration of his closest allies." Sentiment in Germany is split over E.U. sanctions against Russia.
In a new book released this month, the former German chancellor, Helmut Kohl, who oversaw his country’s reunification 25 years ago and negotiated the withdrawal of Russian forces, takes aim at Ms. Merkel and European leaders for policies he said are isolating Russia.
Mr. Soros, however, said Europe needed to redouble its hard line against Russia, and said that U.S. President Barack Obama’s failure to take a strong immediate response to Russia’s seizure of Ukraine territory only emboldened Vladimir Putin, who could conceivably transfer his designs from Ukraine to the Baltic countries, which are now E.U. members.
"Freedom sounds like a free good, but you have to be ready to defend it," Mr. Soros said. “If you don’t put up resistance, it will become too hot to handle."
Pro-European Ukrainians are “fighting to defend Europe and the Europeans don’t realize it,’’ Mr. Soros said. Moving on to economic issues, Mr. Soros faulted Germany for doing too little to restore euro zone stability. He said the inflation-fighting mandate of the European Central Bank, which is based in Frankfurt, is no longer appropriate when deflation, not inflation, is the real threat.
The ECB is controlled by Germany, the zone’s largest economy and toughest enforcer of austerity demands on weaker euro countries such as Greece, Spain, Portugal and Italy, Mr. Soros said. Referring to the ECB president, Mario Draghi, Mr. Soros said: “Draghi can do whatever it takes (to save the euro) as long as he has the support of Angela Merkel," Mr. Soros said. “The ECB is independent as long as it has support from Germany."
German demands for austerity are wrong-headed, he said, and only serve to impede the euro zone’s recovery.
"The policy of austerity is inappropriate to the current conditions," Mr. Soros said. "We are in a situation of deflation and the policies are directed at inflation."