Interview with George Soros: 'Merkel Is Leading Europe in the Wrong Direction'

Spiegel
February 13, 2012

Global investor George Soros considers the German government's policies in the euro crisis to be disastrous. In a SPIEGEL interview, he warns of a vicious circle triggered by Chancellor Angela Merkel's strict austerity measures and pleads for more money to be pumped into the countries most plagued by the debt crisis.

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.

SPIEGEL: In the end, as the economically strongest country, Germany would have to carry the greatest burden of such programs. Many Germans no longer agree that should be done. Why should Germans now provide more money to the countries that have obviously cheated on the euro stability criteria?

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.

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