Soros: This Euro Summit Will Decide if the Euro Breaks Down (Bloomberg TV Interview)

George Soros was interviewed by Bloomberg TV's Francine Lacqua on June 25 (watch the 43 minute interview below) and said he believes this Euro summit (June 28-29) will decide the fate of the Euro.

"We are sort of at the crossroads. I think this summit is more important than all the previous summits because what the previous summits have done have been to delay the issue and not to resolve it. And by delaying it, actually the problem got bigger and bigger. So, the idea that the euro actually might break down really a few months ago was pretty much inconceivable. Now it's a real possibility. So, by delaying it, the problem got bigger and bigger. And if you delay it again, as I said one of two things would happen. One: that the euro would break down. But that's actually unlikely because a breakdown of the euro would be very very expensive and destabilizing. And it would be particularly expensive and destabilizing for Germany because Germany is currently sort of the best performing economy, therefore it has the most to lose. And also it has the greater creditor status. And since the inter-bank market has broken down, all the capital flight from the weaker countries has created a claim that the Bundesbank has against the Central Banks of the weaker countries as part of the euro clearing system."

More from the transcript (via

Soros on Europe’s crisis:

“Basically there is an interrelated problem of the banking system and the excessive risk premium on sovereign debt – they are Siamese twins, tied together and you have to tackle both. It’s recognized that you have to do that and there is no widespread agreement on what to do on the banking side. It’s the beginning of a banking union and there is a disagreement on the fiscal side and unless that is resolved in the next 3 days then I am afraid that the summit could turn out to be a fiasco, and that could be fatal, because you are facing the possibility of Greece leaving the euro and perhaps the European Union and you need to strengthen the remaining euro structure to withstand that shock.”

On what Europe needs:

“What you need is a European fiscal authority that will be composed of the finance ministers but would be in charge of the various rescue mechanisms, the European Stability Mechanism, and the one that preceded it and it would be empowered to issue treasury bills, to set up a debt reduction fund and actually buy up the excess stock of that that has accumulated in the hands of particularly Italy and Spain and finally combine issuing treasury bills. Those treasury bills would yield 1% or less and that would be the relief that those countries need in order to finance their debt.”

“Euro bonds are not possible because Germany would not consider euro bonds until you have a political union, and I think it’s actually quite justified, it should come at the end of the process not at the beginning. This would be a temporary measure, limited both in time and in size, and thereby it could be authorized according to the German constitution as long as the Bundestag approves it, so it could be legal under the German constitution and under the existing treaties. What it means is the political will by Germany to put it into effect and that would create a level playing field so that Italy and Spain could actually refinance its debt on reasonable terms.”

On whether he believes Germany would be content with a smaller euro zone:

“I think Greece leaving the euro zone or being pushed out is now a real expectation and this is what is necessary to strengthen the rest of the euro zone because the way the financial markets work they can actually push a country like Italy into default – see this is what the weakness of the euro as it is currently structured because a developed country has no reason to default because it can always print money. By printing money it can devalue the currency and people can lose money by buying debt but there is no danger of default, but the fact that the individual members don’t now control the right to print money – they have given that right over to the central bank you see, and that has created this situation with a European country that could actually default and that is the risk that the financial markets price into the market and that is why say ten-year bonds yield 6% whereas British 10-year bonds yield only 1.25%. That difference is due to the fact that these countries have abandoned the, surrendered their right to print their own money and they can be pushed into default by speculation in the financial markets.”

On the chances today of Greece leaving the euro:

“It’s very hard to see how Greece can actually meet the conditions that have been set for Greece, and I think the Germans are determined not to modify those conditions seriously so I think one has to now calculate on Greece being forced out of the euro – that’s what we have to prepare for.”

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