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“Lead or Leave Euro”, Soros Tells Germany

Germany’s obsession with austerity is endangering the euro and Europe, says George Soros. Germany must either get with the program or abandon ship:

“Lead or leave: this is a legitimate decision for Germany to make,” the billionaire financier and philanthropist said in an interview with the Financial Times. “Either throw in your fate with the rest of Europe, take the risk of sinking or swimming together, or leave the euro, because if you have left, the problems of the eurozone would get better.”

He is probably right. A critical mass of other European countries—France, Spain, Italy—simply will not live the way the Germans want them to. A German-style monetary union will not work for them. Like putting lederhosen on a squid, you just can’t put a German monetary system on a Latin country.

Germany has to decide whether it can live with a monetary system it doesn’t control and doesn’t like or whether it needs to strike out on its own. Germany has a lot of power because it has a lot of money. But that financial advantage isn’t enough to compel its neighbors to accept Germany’s vision for the future of European monetary union. There is simply no way that a European fiscal authority or other body can be formed for the European Union that doesn’t ultimately reflect the fact that Germany is in the minority in Europe.

The rules that govern Europe will not be written in Germany. It is true that Spain, Portugal, and Italy are all debtors, and it is true that they are all trying to evade many of the commitments Germany would like them to make. But it is also true that countries like them, including France, will have a controlling say on any European monetary authority that reflects population, economy, and the number of countries involved. If Germany gets the fiscal union it wants, it will not control the policies that the fiscal union adopts. It can probably force through just about any language it wants when it comes to the charter of that organization, but as we have seen with the ECB, necessity has a way of amending charters. One way or another, the squid will slither out of the lederhosen.

Germany cannot get the credible assurances it wants about the future policies of a European financial union. It must make the decision to either join or stay out of such a union based on the understanding that over time the policies of that union are going to look more French and more Italian.

Germany has won the economic competition in Eurpe and has become the continent’s largest economy. But it has lost the political battle, and now it must choose.

Soros would like to see it choose quickly, and he is probably right. But both alternatives are so horrible and expensive that it is much more likely that Germany will dither for some time. Angela Merkel’s leadership style has been to let necessity be seen to force every concession that she makes. She has so far avoided being in the position of seeming to advocate courses of action that her constituents loathe even as she bows to the pressure of events. That may be the only politically viable course.

But the longer Germany dithers, the more destructive the crisis becomes. It isn’t pretty, and it should make Americans grateful that our founding fathers in Philadelphia were able to get the work of nation building done so quickly.

Germany ultimately faces a choice between two unhappy alternatives. It can stay in the euro and watch the rules gradually become soft and fuzzy even as it assumes greater responsibility for the debt of its neighbors. Or it can leave, and watch its currency appreciate rapidly, creating many problems for Germany’s export driven manufacturing economy.

Lead or leave: and both choices are bad.

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