A European Solution to the Eurozone's Problem

The following is an extended version of George Soros's article, "Germany's Choice."

My objective in coming here today is to discuss the euro crisis. I think you will all agree that the crisis is far from resolved. It has already caused tremendous damage both financially and politically and taken an extensive human toll as well. It has transformed the European Union into something radically different from what was originally intended. The European Union was meant to be a voluntary association of equal states but the crisis has turned it into a creditor/debtor relationship from which there is no easy escape. The creditors stand to lose large sums of money should a member state exit the union, yet debtors are subjected to policies that deepen their depression, aggravate their debt burden and perpetuate their subordinate status.

This has created political tensions as demonstrated by the stalemate in Italy. A majority is now opposed to the euro and the trend is growing. There is a real danger that the euro will destroy the European Union. A disorderly disintegration would leave Europe worse off than it was when the bold experiment of creating a European Union was begun. That would be a tragedy of historic proportions. It can be prevented but it can be prevented only with Germany’s leadership. Germany didn’t seek to occupy a dominant position and has been reluctant to accept the responsibilities and liabilities that go with it. That’s one of the reasons for the crisis. But willingly or not, Germany is in the driver’s seat and that is what brings me here.

What caused the crisis? And how can Europe escape from it? These are the two questions I want to answer. The first question is extremely complicated. The euro crisis has both a political and a financial dimension. And the financial dimension has at least three components: a sovereign debt crisis and a banking crisis, as well as divergences in competitiveness. The various aspects are interconnected, making the situation so complicated that it boggles the mind. In my view it cannot be properly understood without realizing the crucial role that mistakes and misconceptions have played in creating it. The crisis is almost entirely self-inflicted. It has the quality of a nightmare.