Soros: ‘Germany should accept Eurobonds or leave the euro’

George Soros

All eurozone governments need to issue bonds jointly to ensure that the common currency survives the sovereign debt crisis, investor George Soros said on Tuesday (9 April).

Soros, a liberal philanthropist who rose to fame as an investor on a big bet against the British pound in 1992, said the sovereign debt crisis was "a tragedy of historic proportions" that only Germany can resolve by allowing for joint bond issuance in the common currency area.

If it refuses, it should instead choose to leave the euro, he added.

"There is a strong case for Germany to make a definitive choice whether to accept (joint) Eurobonds or to leave the euro," Soros said in a speech at the University of Frankfurt.

"The danger of default would disappear and so would the risk premiums… Most of the seemingly intractable problems would vanish into thin air," he added.

Germany 'in the driving seat'

Northern European countries, especially Germany, but also other triple-A rated countries like the Netherlands, Luxembourg and Finland, have resisted suggestions that eurozone countries should start guaranteeing each others' debt. They argue that this would reward the countries which have taken on large debt loads at the expense of the responsible ones.

Soros acknowledged that German government bond yields would rise if joint bonds were introduced. But he said this would be more than offset by the indirect benefits of eurozone periphery returning to growth.

Otherwise Europe faced "a real danger that the euro will destroy the European Union," leaving Europe and Germany worse off at the end of the day.

"It can be prevented but it can be prevented only with Germany’s leadership," Soros went on.

"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."

Soros said he had reflected long and hard about whether he should present his case before or after the German elections, scheduled in September this year. He said he's made up his mind because "the crisis is likely to become more acute even before the elections", due to the Cyprus bailout, and because it would take time for the idea of Eurobonds to take hold in the German public opinion.

"Only the German electorate is qualified to decide," Soros said, noting that if a referendum were called today the euro skeptics would win hands down. "But more intensive consideration could change people’s mind. They would discover that authorising Eurobonds would actually benefit Germany and the cost of leaving the euro has been greatly understated."

"we must all do what we can to persuade the German public to abandon some of its most ingrained prejudices and misconceptions and accept Eurobonds".

Eurobonds refer to the possibility of mutualising debt among the 17 countries in the euro area as a way of bringing down the borrowing costs of weaker states.

The idea resurfaced as the financial and economic crisis started hitting Europe in 2008. With many countries forced to pay unsustainable yields to refinance their public debt, the concept of low-yield Eurobonds sounded appealing to a growing field of investors and economists who argued it would be the best – and perhaps only – way of solving the debt crisis.

France, Italy and Spain have backed the idea, as well as the European Commission, which has long been a backer of euro area bonds.

But Eurobonds are strongly opposed by Germany, which pays low yields on its public debt and fears being forced to pay more to issue a eurozone security.

Berlin has not ruled out eurozone bonds entirely but sees it only as a long-term prospect that can take place if Europe takes more steps towards a tighter political and fiscal union, which remains a long way off.

In November 2011, the European Commission presented a Green Paper on the feasibility of Eurobonds listing three options ranging from the ambitious full replacement of national bonds with eurobonds to a less drastic partial substitution without joint guarantees.

  • 22 Sept. 2013: German elections

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