How Germany can avoid a two-speed Europe

by George Soros

Financial Times
March 21, 2011

The so-called euro crisis is more than a currency crisis; it is also a sovereign debt and, even more, a banking crisis. The situation is extremely complex. This complexity has bred confusion and the confusion has political consequences. So Europe faces not only an economic and financial but also a political crisis. The various member states have formed widely different views and their policies reflect their views rather than their true national interests. The clash of perceptions carries the seeds of serious political conflicts.

The solution that is about to be put in place will be effectively dictated by Germany, without whose sovereign credit no solution is possible. France tries to influence the outcome but in the end must yield to Germany because its triple A rating is dependent on being closely allied with Germany.

Germany blames the crisis on the countries that have lost competitiveness and run up their debts. Consequently, Germany puts all the burden of adjustment on the debtor countries. This is a highly biased view that ignores the fact that this is not only a sovereign debt crisis but also a currency and banking crisis – and Germany bears a major share of responsibility for those crises.

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