Soros is correct. And I would like to add, even if the Southern countries did leave the Euro, they would not be able to print currency fast enough to pay their obligations with their plunging exchange rate.
I agree with you on the fact that the internal devaluation in Europe is painful and causing social unrest. That's why I favor Soros' suggestion: Germany should either lead or leave the Euro.
If Germany wants to keep the Euro together, then it must be more decisive and accept that the Southern countries sent capital north during the boom times. Now to restore competitiveness, Germany can either commit to transfer payment to align unit labor costs or accept higher inflation.
If, however, Germany does not want to tolerate either or both actions, then it should leave the Euro. With Germany gone, the ECB can pursue the necessary monetary stimulus to get Southern Europe more competitive. Then, Germany can go back to the Deutche Mark at the appreciated value that their country deserves.
Bernanke certainly knows what he is doing. He is buying bonds in order to boost AD and stave off deflation, which have nothing to do with central planning. He may be more vocal than his predecessors about calling out Congress, but his claims are warranted given the gridlock in both the houses. As for his policies, they mirror the aggressive monetary action put forth in research by Milton Friedman, Barry Eichengreen, and his own, and are the primary the reason why the U.S. is in the best shape out of all the OECD countries.
Dr. Doom, everybody warns of entering a currency war, but the evidence doesn't show them to be so bad. As B. Eichengreen's study on the Great Depression showed, the countries who left the Gold Standard early and pursued stimulative monetary policy returned to prosperity the fastest. This is because stimulative monetary policy isn't just to boost exports, but the jump start aggregate demand!
As Matt Yglesias says, a currency war isn't a war at all; it's a party!
Dr. Doom, I believe you are too pessimistic on a Fed exit. Bernanke has said that they have the tools to unwind the Fed balance sheet, which includes a policy as easy as holding the assets to maturity.
And even if the Fed had to raise interest paid on excess reserves in order to sop up the extra liquidity or even raise interest rates altogether, well, these losses don't matter anyway. They would in no way impact the U.S. debt or deficit, but just offset future profits. And the only reason interest rates would rise is if the economy is booming again, which would mean that QE worked and that the benefits outweighed the costs.