Europe on an economic and political suicide mission: Soros

Europe is on an economic and political suicide mission, billionaire George Soros and Nobel laureate Paul Krugman are warning.

They argue that current policies need to be abandoned fast to fix the problem.

Speaking independently of each other, the two political heavyweights say European policymakers need to change tack to save the EU and the economy that underpins it.

Soros warned on Monday that the euro crisis is growing deeper, tearing at the fabric of EU cohesion, because, he said, policymakers are prescribing the wrong remedies.

“I’m afraid that the euro crisis is getting worse. It’s not over yet, and it is going in the wrong direction,” Soros said in discussion with Denmark’s economics minister hosted by the daily newspaper Politiken.

Soros said that by ruling out fiscal stimulus, monetary policy is the only tool available and it is not being utilised.

“The euro is undermining the political cohesion of the European Union, and if it continues like that could even destroy the European Union,” Soros said.

“That is due to a misunderstanding of what the problem is.

“It could be reversed at any time if only the authorities understood that the box is broken and you need to find some out-of-the-box invention to bring it back inside the box and then put it right, change the rules of cohesion,” he said.

Meanwhile, Nobel laureate Krugman, was reacting to what he called a heart-breaking story in The New York Times on the phenomenon of suicide by economic crisis, with people taking their own lives in despair over unemployment and business failure.

“Just a few months ago I was feeling some hope about Europe. You may recall that late last [autumn] Europe appeared to be on the verge of financial meltdown; but the European Central Bank, Europe’s counterpart to the Fed, came to the continent’s rescue,” he said.

“It offered Europe’s banks open-ended credit lines as long as they put up the bonds of European governments as collateral; this directly supported the banks and indirectly supported the governments, and put an end to the panic.

Krugman said the prescription coming from Berlin and Frankfurt is even more fiscal austerity.

“This is, not to mince words, just insane. Europe has had several years of experience with harsh austerity programmes, and the results are exactly what students of history told you would happen: Such programmes push depressed economies even deeper into depression. And because investors look at the state of a nation’s economy when assessing its ability to repay debt, austerity programmes haven’t even worked as a way to reduce borrowing costs,” he said.

Krugman said the cure for European economies is to exit the euro and re-store national currencies.

He said: “You may say that this is inconceivable, and it would indeed be a hugely disruptive event both economically and politically. But continuing on the present course, imposing ever-harsher austerity on countries that are already suffering Depression-era unemployment, is what’s truly inconceivable.”

Krugman said it is difficult to avoid a sense of despair.

“Rather than admit that they’ve been wrong, European leaders seem determined to drive their economy — and their society — off a cliff. And the whole world will pay the price,” he said.