George Soros is right. The veteran hedge fund investor and philanthropist wants the governments of Europe to adopt a radical new economic approach to the emergency facing the Continent. Rather than directing pots of taxpayers’ cash to cope with the influx of people on a piecemeal basis, Mr Soros is calling for “surge funding” from the European community.
This would take its inspiration from other big up-front financing initiatives such as developing world vaccination campaigns. The sums involved, according to Mr Soros, would be at least €40bn a year for the next three years. This should be used to give refugees jobs, healthcare and education – and not just in Europe but in countries closer to the “frontline”, such as Jordan, Lebanon and Turkey.
And Mr Soros says the EU should borrow from the global markets to fund this spending surge, leveraging the continent’s top-notch credit rating. “When should the EU’s AAA credit be mobilised, if not at a moment when the EU is in mortal danger?” he asks.
One senses this is a personal cause. Mr Soros has called for a fiscal stimulus for the struggling eurozone for years now. And he admits the surge spending would be “of macroeconomic significance”, with beneficial spill-over benefits for GDP growth. It’s also personal because Mr Soros himself left Hungary as a refugee after the Second World War. He benefited from English lessons and attended the West London polytechnic in Kentish Town before taking up a place at the London School of Economics. No doubt he wants people in a similar situation to have the same opportunities he had.
The macroeconomic effects are not contentious. The International Monetary Fund recently stated that there will be a short-term boost to Europe’s GDP, even from the dribs-and-drabs spending response. A surge spend would, logically, have an even bigger impact.
The problem is not the economics. The problem is European public opinion and timidity of leaders. “Spending a large amount of money up front would allow us to address the most dangerous consequences of the crisis,” said Mr Soros.
Sadly, this sounds like wishful thinking. As many economists point out, Europe should have been borrowing and spending on infrastructure projects to stimulate the economy since 2011. Think of the near 50 per cent youth employment in Greece and Spain. Think of the Italian economy, now smaller than it was when the eurozone formed. Yet this hasn’t happened as a result of the lack of trust – and, tragically, compassion – within the bloc and between nations. If Europe will not spend to help Europeans, what hope that it will spend to help non-Europeans?
And if the Keynesian logic of debt-funded stimulus spending to kick-start the Continent’s economy did not persuade the leaders of Germany, the Netherlands and Austria during the eurozone torment two years ago, why would it now?
Don’t bet against Soros. After Black Wednesday in 1992, that became a rule of thumb for financial traders. Norman Lamont and the Bank of England learned that lesson the hard way when sterling crashed out of the Exchange Rate Mechanism, netting Soros’s hedge fund an estimated £1bn profit. But sadly, this is an occasion where the rule of thumb doesn’t look so useful. The odds of Soros getting his pro-migrant spending surge must be long indeed.
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