Billionaire investor George Soros thinks a country will eventually exit the euro zone and urged policymakers on Sunday to come up with a "plan B" that could rescue the European Union from looming economic collapse.
Soros, famous for making $1 billion by betting against the British pound in 1992, did not name any country he thought might exit the currency, but speculation is mounting about the fate of Greece as its politicians struggle to agree more austerity measures demanded by international lenders as the price for staving off bankruptcy.
Soros reiterated his view in a panel discussion in Vienna that the euro had a basic flaw from the start in that the currency was not backed by political union or a joint treasury.
"The euro had no provision for correction.
There was no arrangement for any country leaving the euro, which in the current circumstances is probably inevitable," he said.
While he called survival of the European Union a "vital interest to all", he said the EU needed structural changes to halt a process of disintegration.
"There is no plan B at the moment. That is why the authorities are sticking to the status quo and insisting on preserving the existing arrangements instead of recognizing there are fundamental flaws that need to be corrected."
With a debt crisis in some peripheral members testing the EU's cohesiveness at a time of popular disquiet in wealthier countries over bailouts, he said leaders had to adopt measures now to remedy the situation.
"Let's face it: we are on the verge of an economic collapse which starts, let's say, in Greece but could easily spread. The financial system remains extremely vulnerable... We are on the edge of collapse and that is the time to recognize the need for change."
Some steps the EU could adopt included creating a larger central budget; directing some of the income from value-added tax or a levy on financial transactions to Brussels; having a European institution guarantee banks, and tripling the size of its bailout fund by topping it up with tax revenue, he said.
Why there is no plan B
The Euro was flawed from the get go because it's structurally an ill-conceived idea. That is the premise that you can have one currency for that many independently sovereign countries. That's a lot of wanting your cake and eating it too.
Imagine if you will that the United States had no US government or laws, and each state ran itself but we shared one paper currency. Is that not in essence the Euro? And when something hits the fan, as it eventually always does, do the 36 million people in California really care about the 600,000 folks in Wyoming? I highly doubt it.
As long as you have independently run Greece, Ireland, etc. but one currency, the Euro is a highly flawed concept because there's no structural unity. It's like a marriage in name only!
The reason there is no plan B is because the only plan B that might work is forcing one leadership (The United States of Europe for example) to rule in every way over the countries within the Euro. This would force today's leaders and governments to give up power. It would mean the end of royalty as we know it. Hence the status quo!
Exiting the Euro
If the countries within the Euro can't form one master government and the financial issues persist, then yes it is very probable one or two countries bail from the Euro because that is the other plan B.
Ireland is a perfect example. They could default and take their pain associated with that and revert back into a completely independent country in every way. The initial financial catastrophe would be enormous and devastating on many fronts within Ireland, but then they would be out of the Euro insanity and have their full independence back. Then they could start over. As an island nation of roughly 6 million people, it wouldn't be that hard to do!
Or what if you're one of the financially stronger countries. Do you really want to carry the financial weakness of the PIIGS as your liability?
The reason we see status quo is because either plan B is not in the favor of the current Euro political class. So, we get more of the status quo and kicking of the can hoping better economic times and free money come a long and bail out flawed ideas and structure.
Now that's not a Euro specific problem, is it?
Hope all is well.
J.D. Rosendahl, Rosey