At Davos 2012 George Soros Says Austerity 'Will Push Europe Into A Deflationary Debt Spiral'
Billionaire investor George Soros warned of a possible breakup of the European Union at the World Economic Forum's annual meeting in Davos, Switzerland, which he said would plunge the continent into political and economic turmoil. The crisis in Europe, he recently said, mirrors the broader crisis facing the global economy.
"Germany is acting as the taskmaster imposing tough fiscal discipline," Soros said on Wednesday, according to several news outlets. He said that this would create tensions "that could destroy the European Union."
In their response to the crisis, European leaders "had little understanding of how financial markets really work and did everything wrong," Soros said, according to The Wall Street Journal. He said that eurozone countries ultimately need to share their debt burden in some form and spend more to stimulate their economies, according to several news sources.
Soros has been sounding the alarm for more than a month about deflation, which he warns will cause more class warfare and oppression as the global financial system teeters closer to collapse. These tensions are clearest in Europe, Soros said in Davos, where troubled eurozone countries are being forced to slash their budgets. He said that these austerity measures will push wages and prices down, which will force to consumers buy less and companies to lay off workers, further hurting consumer demand and quality of life. Ultimately, he said, this economic turmoil will result in political repression as leaders fear the anger of the new poor.
"Without a clear game plan, Europe will remain mired in a larger vicious circle, in which economic decline and political deterioration continue to reinforce one another," Soros said on Wednesday.
"What is happening in Hungary today," Soros said, according to The New York Times, "is a precursor of what is in store." By many accounts, Hungary is sliding toward authoritarianism as it cracks down on the independence of Hungary's press, judicial system, and central bank.
Soros detailed his concerns about the global economy and society in a recent interview with Newsweek. He said that the current situation is "comparable in many ways" to the Great Depression. "The best-case scenario is a deflationary environment. The worst-case scenario is a collapse of the financial system," he told Newsweek.
The world's loss of confidence in the efficiency of global markets after the financial crisis in 2008 "is comparable to the collapse of Marxism as a political system," Soros said in the Newsweek interview. He said he expects riots in the United States as people respond angrily to their deteriorating economic conditions. "It will be an excuse for cracking down and using strong-arm tactics to maintain law and order, which, carried to an extreme, could bring about a repressive political system," he said.
Soros said in early December that the global financial system is in a "self-reinforcing process of disintegration," as a "deflationary debt trap" takes hold.