Wednesday, December 15, 2010

Soros: Irish Will Reject Bailout Deal; Print Money for Everybody

The new Irish government, to be elected in April 2011. "is bound to repudiate" the rescue package agreed with the EU and IMF, George Soros says in a commentary at FT:
The authorities are making at least two mistakes. One is that they are determined to avoid defaults or haircuts on currently outstanding sovereign debt for fear of provoking a banking crisis. The bondholders of insolvent banks are being protected at the expense of taxpayers. This is politically unacceptable. A new Irish government to be elected next spring is bound to repudiate the current arrangements. Markets recognise this and that is why the Irish rescue brought no relief. Second, high interest rates charged on rescue packages make it impossible for the weaker countries to improve their competitiveness vis-à-vis the stronger ones. Divergences will continue to widen and weaker countries will continue to weaken. Mutual resentment between creditors and debtors is liable to grow and there is a real danger that the euro may destroy the political and social cohesion of the EU.
He's correct on this and almost sounds like a protester.

Then he follows with his solution, print money for the entire EU:
Both mistakes can be corrected. With regard to the first, emergency funds ought to be used to recapitalise banking systems as well as to provide loans to sovereign states. The former would be a more efficient use of funds than the latter. It would leave countries with smaller deficits, and they could regain access to the market sooner if the banking system were properly capitalised. It is better to inject equity now rather than later and it is better to do it on a Europe-wide basis than each country acting on its own. That would create a European regulatory regime. Europe-wide regulation of banks interferes with national sovereignty less than European control over fiscal policy. And European control over banks is less amenable to political abuse than national control.

With regard to the second problem, the interest rate on rescue packages should be reduced to the rate at which the EU itself can borrow. This would have the advantage of developing an active Eurobond market.
I hope he is joking when he says Euro control over the banks will mean less interference with national sovereignty. Keep in mind, this is coming from a guy who is attempting to influence regimes around the world, and can do so only because of his money. What a monster!

The only real solution is for individual countries to secede from the EU, bring back their own currencies, restructure their debt, i.e.,go bankrupt, and start fresh with a new stable currency, and attempt to keep it that way, by shrinking the role of government and its drain on money.

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