Billionaire business magnate George Soros is lighting up the financial world with an expansive speech on the history of the euro, which argues that, since its inception, the currency has been a bubble waiting to burst. Soros says the euro was forged on the untenable arrangement that saw creditworthy Germany balancing out weaker, debt-filled countries like Greece. Soros argues that Germany will do the bare minimum of what is "necessary to preserve the euro" — because its banks would suffer massive losses were the euro to crumble — "but nothing more." The result would be "a German empire with the periphery as the hinterland," a system in which Germany would continue to prop up weaker nations with the equivalent of financial aid. Could the European Union become a German empire?
Yes. Germany is dependent on weaker nations: Soros has made "one of the smarter arguments" for why the euro will stick around, says Ezra Klein at The Washington Post. The weaker countries on Europe's periphery act as an "ongoing subsidy to Germany" by making the euro weaker. As a result, Germany's exports are cheaper and far more competitive on the international market. If the euro were to collapse, the Germans would "lose one of the main drivers of their economy."
"Why George Soros thinks the euro will survive"
No. Democracies in Europe won't allow it: Soros' theory is "politically impossible, in a union of democratic nations," says Felix Salmon at Reuters. A system in which the Germans "reluctantly dole out a stream of transfer payments to a resentful periphery" will never last because voters would hate it. Furthermore, while Germany could find advantages in propping up a large, debt-embattled economy like Spain, it could never justify endlessly supporting a fiscal problem child like Greece.
"George Soros and the two choices facing Europe"
Actually, all currency unions work this way: What Soros is describing might seem nefarious, but a German empire would actually be a "very banal outcome," says Matthew Yglesias at Slate. Every large nation with a single currency operates "on precisely this principle — you have prosperous parts of the country and you have backwards laggards." In the U.S., for example, the "coasts subsidize Appalachia and the Gulf Coast," while in China there are "rich coasts and a poor interior." That is "just how the world works."
"If Europe's currency union survives, it will look like all the other currency unions"