George Soros: 'drastic' action needed for eurozone to survive

The eurozone risks lurching towards another major financial crisis triggered by austerity and populist political parties intent on blowing apart the EU, the billionaire investor George Soros has warned.

Richard Partington 30 May 2018

Sounding the alarm as financial markets fell into turmoil on Tuesday amid a deepening political crisis in Italy, Soros said the EU had lost its way since the 2008 banking crash and required radical transformation in order to survive.

“The EU is in an existential crisis. Everything that could go wrong has gone wrong,” he said in a speech in Paris.

Related: Soros-backed campaign to push for new Brexit vote within a year

Having recorded the strongest period of economic growth in a decade towards the end of 2017, Europe appears to be heading for a fresh summer of political unrest for the first time in several years. Investors fear the turmoil could ultimately lead to the demise of the euro, plunging the region into chaos.

Related: George Soros: The incredible story of the penniless Nazi refugee who broke the Bank of England (Lovemoney)

The incredible story of the penniless Nazi refugee who broke the Bank of England

Italian bonds dropped sharply on Tuesday, pushing the country’s borrowing costs to the highest levels in more than four years as concerns grew that the EU’s third-largest economy could exit the single currency.

The crisis comes after Sergio Mattarella, the country’s president, vetoed the appointment of a controversial Eurosceptic as finance minister over the weekend, laying the ground for fresh elections later this year.

In Spain, the prime minister Mariano Rajoy faces a vote of confidence on Friday that could further plunge southern Europe into political turmoil.

Related: Europe's fragility is exposed again

© Getty composite

While the fresh unrest is likely to embolden eurosceptics who believe the EU is ultimately doomed, including prominent Brexiters in the UK pushing for Theresa May to take a tougher stance against Brussels, Soros said reforms could help save the bloc.

The Hungarian-born investor said an “addiction to austerity” at the heart of Europe was harming economic development, which had in turn been exploited by populist politicians to stoke anti-EU support.

“As a result [of austerity], many young people today regard the EU as an enemy that has deprived them of jobs and a secure and promising future,” he said.

Soros, a prominent supporter of the Remain campaign, said there were still steps that could be taken to make the EU more appealing to ordinary voters, who had been let down by Brussels since 2008.

Calling for an EU-funded Marshall plan for Africa worth about €30bn (£26bn) per year, he said migratory pressures across Europe could be relieved by helping developing nations. He also called for the EU to abandon rules requiring member states to join the euro single currency, lest they eventually combine with other EU rules to “destroy” the project altogether.

Echoing a call made by David Cameron ahead of the Brexit vote, he argued for the EU to allow member states to pursue “multi-track” relations with the bloc, rather than “ever closer union”. That would enable countries to work together in certain areas and diverge in others, helping to address issues of sovereignty.

“Europe needs to do something drastic in order to survive its existential crisis. Simply put, the EU needs to reinvent itself,” he said.

QUICK GUIDE: What are the Brexit options now? Four scenarios

Staying in the single market and customs union

The UK could sign up to all the EU’s rules and regulations, staying in the single market – which provides free movement of goods, services and people – and the customs union, in which EU members agree tariffs on external states. Freedom of movement would continue and the UK would keep paying into the Brussels pot. We would continue to have unfettered access to EU trade, but the pledge to “take back control” of laws, borders and money would not have been fulfilled. This is an unlikely outcome and one that may be possible only by reversing the Brexit decision, after a second referendum or election.

The Norway model

Britain could follow Norway, which is in the single market, is subject to freedom of movement rules and pays a fee to Brussels – but is outside the customs union. That combination would tie Britain to EU regulations but allow it to sign trade deals of its own. A “Norway-minus” deal is more likely. That would see the UK leave the single market and customs union and end free movement of people. But Britain would align its rules and regulations with Brussels, hoping this would allow a greater degree of market access. The UK would still be subject to EU rules.

The Canada deal

A comprehensive trade deal like the one handed to Canada would help British traders, as it would lower or eliminate tariffs. But there would be little on offer for the UK services industry. It is a bad outcome for financial services. Such a deal would leave Britain free to diverge from EU rules and regulations but that in turn would lead to border checks and the rise of other “non-tariff barriers” to trade. It would leave Britain free to forge new trade deals with other nations. Many in Brussels see this as a likely outcome, based on Theresa May’s direction so far.

No deal

Britain leaves with no trade deal, meaning that all trade is governed by World Trade Organization rules. Tariffs would be high, queues at the border long and the Irish border issue severe. In the short term, British aircraft might be unable to fly to some European destinations. The UK would quickly need to establish bilateral agreements to deal with the consequences, but the country would be free to take whatever future direction it wishes. It may need to deregulate to attract international business – a very different future and a lot of disruption.

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