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DAVOS: EU Needs Euro Bonds “In One Form Or Another” Says Soros

Published: January 25, 2012 | 2:43 pm
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Jointly issued debt, or euro bonds, are an inevitable part of the solution to the euro zone’s sovereign debt crisis, veteran financier George Soros said on January 25, as the region cannot resolve its problems through structural reforms alone.

At a lunch on the sidelines of the World Economic Forum, Soros told journalists that European authorities “had done everything wrong” in their response to the financial crisis that struck in 2007, with a confused policy response that betrayed widespread ignorance of how financial markets work.

“The austerity that Germany wants to impose will push Europe into a deflationary debt spiral,” Soros warned, adding that the political disintegration of the European Union will inevitably follow if the economy does spiral out of control.

“Structural reforms alone will not do it,” Soros said. “There will have to be fiscal stimulus and that fiscal stimulus will have to come from the EU, jointly and severally guaranteed by the member states. Euro bonds are needed in one form or another.”

Soros called on the authorities to adopt a plan pioneered by the late Italian central banker Tommaso Padoa-Schioppa, under which the European Financial Stability Facility would buy short-term Treasury bills at low interest rates from countries with troublesome debt burdens.

He noted that while the European Central Bank’s latest long-term refinancing operations had reduced funding costs for the likes of Spain and Italy in the short term, the Padoa-Schioppa plan would offer immediate and urgently needed budgetary relief.

Such a plan, he said “would strengthen the… government” in Italy, by making it clear to the Italian people that there were benefits from adopting the kind of reforms outlined by the technocrat Prime Minister Mario Monti last week.

Source: Fox Business


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