George Soros describes how the euro can be saved in today’s FT:
1. Reform and recapitalisation of the banking system…Banks’ equity capital levels need to be greatly increased. If an agency is to guarantee banks’ solvency, it must oversee them too. A powerful European banking agency could end the incestuous relationship between banks and regulators, while interfering much less with nations’ sovereignty than dictating their fiscal policies.2. A Eurobond regime…Deficit countries must be allowed to refinance their debt on the same terms as surplus countries. This is best accomplished through eurobonds, which would be jointly guaranteed by all the member states.3. An exit mechanism…It might be possible to devise an orderly exit for a small country like Greece that would not be applicable to a large one like Italy. In the absence of an orderly exit, the regime would have to carry sanctions from which there is no escape – something like a European finance ministry that has political as well as financial legitimacy. That could emerge only from a profound rethinking of the euro that is so badly needed (particularly in Germany).
It is always interesting to see what George thinks should happen, but he’s made his billions analyzing what will happen and I’ve met fewer people better able to separate their sentiment from their judgment.So what I’m wondering is where Mr. Soros has his money. Does he really think global financial leaders have what it takes to implement these reforms? Or is he betting against them, like many others who think that our financial leaders will fail?Reading his prescription, the odds seem against the Europeans getting those three steps done in time.