The Euro Is Finished

Does the euro have a future?

By Gerorge Soros

The euro crisis is a direct consequence of the crash of 2008. When Lehman Brothers failed, the entire financial system started to collapse and had to be put on artificial life support. This took the form of substituting the sovereign credit of governments for the bank and other credit that had collapsed. At a memorable meeting of European finance ministers in November 2008, they guaranteed that no other financial institutions that are important to the workings of the financial system would be allowed to fail, and their example was followed by the United States.
Angela Merkel then declared that the guarantee should be exercised by each European state individually, not by the European Union or the eurozone acting as a whole. This sowed the seeds of the euro crisis because it revealed and activated a hidden weakness in the construction of the euro: the lack of a common treasury. The crisis itself erupted more than a year later, in 2010.
There is some similarity between the euro crisis and the subprime crisis that caused the crash of 2008. In each case a supposedly riskless asset—collateralized debt obligations (CDOs), based largely on mortgages, in 2008, and European government bonds now—lost some or all of their value.
Unfortunately the euro crisis is more intractable. In 2008 the U.S. financial authorities that were needed to respond to the crisis were in place; at present in the eurozone one of these authorities, the common treasury, has yet to be brought into existence. This requires a political process involving a number of sovereign states. That is what has made the problem so severe. The political will to create a common European treasury was absent in the first place; and since the time when the euro was created the political cohesion of the European Union has greatly deteriorated. As a result there is no clearly visible solution to the euro crisis. In its absence the authorities have been trying to buy time.
In an ordinary financial crisis this tactic works: with the passage of time the panic subsides and confidence returns. But in this case time has been working against the authorities. Since the political will is missing, the problems continue to grow larger while the politics are also becoming more poisonous.
It takes a crisis to make the politically impossible possible. Under the pressure of a financial crisis the authorities take whatever steps are necessary to hold the system together, but they only do the minimum and that is soon perceived by the financial markets as inadequate. That is how one crisis leads to another. So Europe is condemned to a seemingly unending series of crises. Measures that would have worked if they had they been adopted earlier turn out to be inadequate by the time they become politically possible. This is the key to understanding the euro crisis.

George Soros, author of this essay looks for ways to save the Euro.

As a self-proclaimed Fabian socialist, he has preconceived ideas about how the world "should" function.

Blaming the weakness of the Euro on the 2008 financial crisis is simply smoke and mirrors.

The deeper issue of the financial crisis is that of integrity, or to boil it down further - truth.

How could banks expect sub-prime mortgages to perform well?


How could sub-prime nations with a history of repeated defaults, such as Greece, be allowed into the Euro with their track record?

It appears that decisions are made for short term profit or political purposes both by banks and nations.

The Euro as a currency is ultimately a poor construct.  With a hodgepodge of countries with different growth rates, debt levels, and treasury departments, it is inherently unstable and unsustainable.

As an informed blog reader, you probably recall that the average longevity of a fiat currency is only 27 years.  

Yet, despite the lessons of  history, from the 11th century failure of Chinese fiat currency, to the Zimbabwean experience recently, socialists throughout the world insist on the superiority of defective fiat currency they call "money".


The first fiat currency:

The Euro:

The Zimbabwe Dollar:

As we can see from this brief history lesson, there is only One who can create something out of nothing (Genesis 1:1).  When man attempts to create "money" from fiat paper, he only creates the monetary equivalent of Frankenstein.