George Soros: Market crisis looms

Britain’s decision to leave the EU has “unleashed” a crisis in financial markets similar to the global financial crisis of 2007 and 2008, George Soros told the European Parliament in Brussels.

“This has been unfolding in slow motion, but Brexit will accelerate it. It is likely to reinforce the deflationary trends that were already prevalent,” the billionaire investor said yesterday.

Mr Soros rose to fame as the money manager who broke the Bank of England in 1992, netting a profit of $1bn with a wager that the UK would be forced to devalue the pound and pull it from the European Exchange Rate Mechanism.

He has warned that a hard landing in China is “practically unavoidable”, arguing that its debt-fuelled economy resembles the US at the onset of the financial crisis.

Continental Europe’s banking system hasn’t recovered from the financial crisis and will now be “severely tested”, Mr Soros said.

“We know what needs to be done. Unfortunately, political and ideological disagreements within the eurozone have stood in the way” of using the European Stability Mechanism as a backstop, he said.

The investor warned before the UK referendum that the pound may slump more than 20% against the dollar if Britain voted to leave. The currency plunged to the lowest in 31 years after the result.

Mr Soros was ‘long’ on sterling before Britain’s vote to leave the EU. The UK’s decision meant “the hypothetical became very real,” Mr Soros said.

“Sterling plunged, Scotland threatened to break away, and some of the working people who supported the ‘Leave’ campaign have started to realise the bleak future that both the country and they personally face.

"Even the champions of Leave are retracting their dishonest pre-referendum claims about Brexit,” he said.

“The orthodoxy of German policymakers stands in the way of the only effective response: Having a eurozone budget that could adopt counter-cyclical policies,” he said.

“Here you are caught in this unfortunate misconception about government debt,” he said. “You need growth and then everything falls into place.”

Mr Soros urged the EU not to penalise British voters while ignoring their legitimate concerns about the shortcomings of the bloc.

“European leaders should recognise their own mistakes and acknowledge the democratic deficit in the current institutional arrangements,” he said.

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