George Soros, the muilti-billionaire currency speculator, says that the New World Order will survive in Europe, but only at this price: the establishment of Germany as the arbiter of Europe’s national deficits. Germany will have to bail out the PIIGS and the banks that loaned to them.
He does not say where Germany will get the money.
He does not say how German-imposed austerity will be accepted by PIIGS voters.
In short, he does not show how doomsday will be avoided.
He began his article with this admission: “Ever since the Crash of 2008 there has been a widespread recognition, both among economists and the general public, that economic theory has failed. But there is no consensus on the causes and the extent of that failure.” He is wrong. Austrian economic theorists predicted the crash and explained it, before it happened.
Keynesians and Chicago School economists and supply-siders were indeed caught off guard.
He went on in a critique of academic economic theory. He is correct. It is modeled after physics, That has been the Austrians’ complaint ever since 1912: Mises’ Theory of Money and Credit. Soros repeats Mises.
I believe that the failure is more profound than generally recognized. It goes back to the foundations of economic theory. Economics tried to model itself on Newtonian physics. It sought to establish universally and timelessly valid laws governing reality. But economics is a social science and there is a fundamental difference between the natural and social sciences. Social phenomena have thinking participants who base their decisions on imperfect knowledge. That is what economic theory has tried to ignore. . . .
Social events, by contrast, have thinking participants who have a will of their own. They are not detached observers but engaged decision makers whose decisions greatly influence the course of events. Therefore the events do not constitute an independent criterion by which participants can decide whether their views are valid. In the absence of an independent criterion people have to base their decisions not on knowledge but on an inherently biased and to greater or lesser extent distorted interpretation of reality. Their lack of perfect knowledge or fallibility introduces an element of indeterminacy into the course of events that is absent when the events relate to the behavior of inanimate objects. The resulting uncertainty hinders the social sciences in producing laws similar to Newton’s physics.
He has a theory of economics. It makes no sense. But this does:
I contend that the European Union itself is like a bubble. In the boom phase the EU was what the psychoanalyst David Tuckett calls a “fantastic object” — unreal but immensely attractive.
He loves the idea of the EU. But he sees that it has been a bubble, a fantasy: the triumph of good intentions over experience. “The EU was the embodiment of an open society — an association of nations founded on the principles of democracy, human rights, and rule of law in which no nation or nationality would have a dominant position.” Reality is now intruding.
Germany was a big promoter initially. He means Germany’s globalist politicians. “The process culminated with the Maastricht Treaty and the introduction of the euro.” Merkel has lost the faith.
It was followed by a period of stagnation which, after the crash of 2008, turned into a process of disintegration. The first step was taken by Germany when, after the bankruptcy of Lehman Brothers, Angela Merkel declared that the virtual guarantee extended to other financial institutions should come from each country acting separately, not by Europe acting jointly. It took financial markets more than a year to realize the implication of that declaration, showing that they are not perfect.
The Maastricht Treaty was fundamentally flawed, demonstrating the fallibility of the authorities. Its main weakness was well known to its architects: it established a monetary union without a political union. The architects believed however, that when the need arose the political will could be generated to take the necessary steps towards a political union.
The bankers were stupid, he says. They trusted the PIIGS.
It took some time for the financial markets to discover that government bonds which had been considered riskless are subject to speculative attack and may actually default; but when they did, risk premiums rose dramatically. This rendered commercial banks whose balance sheets were loaded with those bonds potentially insolvent. And that constituted the two main components of the problem confronting us today: a sovereign debt crisis and a banking crisis which are closely interlinked.
He blames “Germany.” But it was not “Germany.” It was the globalists who ran Germany. They have been the “center.”
. . . the creditors are in effect shifting the burden of adjustment on to the debtor countries and avoiding their own responsibility for the imbalances. Interestingly, the terms “center” and “periphery” have crept into usage almost unnoticed. Just as in the 1980’s all the blame and burden is falling on the “periphery” and the responsibility of the “center” has never been properly acknowledged. Yet in the euro crisis the responsibility of the center is even greater than it was in 1982. The “center” is responsible for designing a flawed system, enacting flawed treaties, pursuing flawed policies and always doing too little too late. In the 1980’s Latin America suffered a lost decade; a similar fate now awaits Europe. That is the responsibility that Germany and the other creditor countries need to acknowledge. But there is no sign of this happening.
He thinks the eurozone is disintegrating. But it can be saved . . . by Germany. He calls on German voters to shoulder the burden. He says they have only 3 months.
The German public cannot understand why a policy of structural reforms and fiscal austerity that worked for Germany a decade ago will not work Europe today. Germany then could enjoy an export led recovery but the eurozone today is caught in a deflationary debt trap. The German public does not see any deflation at home; on the contrary, wages are rising and there are vacancies for skilled jobs which are eagerly snapped up by immigrants from other European countries. Reluctance to invest abroad and the influx of flight capital are fueling a real estate boom. Exports may be slowing but employment is still rising. In these circumstances it would require an extraordinary effort by the German government to convince the German public to embrace the extraordinary measures that would be necessary to reverse the current trend. And they have only a three months’ window in which to do it.
We need to do whatever we can to convince Germany to show leadership and preserve the European Union as the fantastic object that it used to be. The future of Europe depends on it.
Let us hope he is right: 3 months to the end of the stupid euro experiment, followed by the collapse of the European Union.
Let us also hope that German voters tell their elected representatives to tell the PIIGS’s politicians to take a hike, and also tell the stupid bankers the same thing.
This much it true: the Eurocrats are running out of time. This will be the summer of their discontent.