Joint Bonds Needed to Save the Euro Says George Soros

All euro zone governments need to issue bonds jointly to ensure that the common currency survives the sovereign debt crisis, investor George Soros said on Tuesday.

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.

Northern European countries, especially Germany, but also other triple-A rated countries like the Netherlands, Luxembourg and Finland, have resisted suggestions that euro zone 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 euro zone periphery returning to growth.

Soros also said the link between the cost of sovereign debt and bank debt – which the EU and the European Central Bank have been trying to break – will be reinforced after large depositors in two Cypriot banks were forced to take a hit as part of the bailout agreed with its European partners and the International Monetary Fund.

As a result, peripheral countries will have an even harder time finding credit, which in turn means continued misery, Soros said.

Topics Europe Germany