Leading article: A voice of euro-fatalism that must be challenged

Tuesday 05 June 2012 08:48

Just when the European Union might have welcomed a fortnight's breathing space, between the Yes vote in Ireland and the Greek election on 17 June, up pops George Soros, billionaire philanthropist and all-purpose financial guru, to throw his venerable spanner in the works. At a conference in Italy, Mr Soros warned that there was but a three-month window to save the euro.

To describe his intervention as ill-timed would be an understatement. It was worse than ill-timed, it was irresponsible. European leaders need no reminding about the scale of the crisis they are confronting, and they especially do not need a deadline set by a speculator. They need time and they need space to examine the options. That is what Mr Soros will have stolen, if they – and/or the markets – choose to heed him. We hope they do not.

To ignore or contradict Mr Soros is a risk not to be taken lightly. Ever since 1992, when he bet against the UK remaining in the European Exchange Rate Mechanism, and won, his words and his financial manoeuvrings have assumed a legendary status. And the difficulty is that, whether his soothsaying is accurate or not, his clout gives him the capacity to move markets. His prophecies become self-fulfilling. When he issued a similarly doom-laden warning at Davos in January – but without the deadline – the euro immediately fell.

The danger now is that politicians and markets respond to the bleak musings of Mr Soros rather than to some of the more positive developments of recent weeks. There have been changes since Mr Soros spoke in January, and not all of them have been for the worse.

The first is Ireland's referendum result. To imagine what different territory the eurozone could now be in, one has only to posit a No vote in Ireland. The 60 per cent Yes might not have been an overwhelming vote of confidence, but it was a convincing statement to the effect that Ireland felt more secure as part of a common European endeavour than not. As such, the vote reflected hope for Europe rather than despair. European leaders, whether inside or outside the euro, can take heart from that.

A second is the change of mood in Europe since the election of François Hollande as President of France. It is often argued that, given all the constraints of the modern world, a change of national leader can alter little. Mr Hollande is the latest in a stream of examples that give the lie to this particular brand of cynicism. With Mr Hollande's arrival on the European scene, the balance between austerity and growth has shifted. While never the straight alternatives much rhetoric suggested, the search is now on for ways of encouraging growth within existing economic limitations. Progress in this direction might just facilitate the election of a viable government in Greece.

And a third is a hint of greater flexibility from Germany. For her own political reasons, Chancellor Merkel cannot afford to execute a sharp turn in economic policy. Her party has, however, come in for a battering in regional elections, and the forecasts – here Mr Soros is right – are for an economic slowdown, even as the country enters a federal election year. Ireland gave Germany the endorsement of the European fiscal stability treaty it needed; with that battle won, perhaps talking can begin.

The bank troubles in Spain and the prospect of Cyprus joining the queue for a bailout must be included in the equation. But one financier, even George Soros, should not be left to dictate the fate of the eurozone unchallenged.

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