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Germany has two options...
Tue, 11 Sep Pre-Open

Not so long ago, the focus of the global media was on Greece. The country's high debt threatened the very existence of the Euro zone. Discussions relating to the country's exit from the EU (European Union) and the implications of the same were everyday news.

The thing is that Eurozone is going through difficult times. And for it to come out of recession, boosting growth is essential. Legendry hedge fund investor George Soros is of the view that the German government must play a strong role towards doing so. But this is possible only if it is willing to help the region's economically weaker members curb their declining growth (if not boosting) levels and escape their high debt traps.

In a recent interview, Mr. Soros stated that he believes Germany has two options. The first one being that of it accepting the cost of leadership and helping the debt ridden member nations grow their way out of the crisis. This it would do by jointly developing a growth policy and also by sharing some of their debt-burden. He also added that the Germany should not oppose the ECB's actions of financing the EU nations. For this Germany has to cool down its strict adherence of keeping inflation levels close to but below 2%. He also added that the Eurozone should aim for nominal growth of at least 5%. This is possible only through relatively higher inflation which is above the comfort levels of the German central bank. This is because without any prospect of growth, debtors would remain in a 'deflationary trap', eventually leading to defaults.

The second option for Germany would be to leave the European Union.

While Germany leaving the union would surprise many, it would only do that much - surprise! It would not lead to any currency debacle (which would be a possibility if any of the weaker member nations were to exit). If this were to happen, the Deutschemark would become stronger, and the Euro would become weaker - thereby making European exports more competitive in the global markets - and thus, helping the member nations to benefit over the long run. Discussing about the ECB's bond buyback program, Mr. Soros' views were similar to those shared by the majority of the investors. He was in favour of the move and feels that this was a more powerful step than the previous ones.

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Feb 20, 2018 (Close)