Collective Conscious

It has come to my atten­tion that George Soros, global finan­cial rogue and inter­na­tional man of mys­tery, has recently begun to spread an op-​​ed ques­tion­ing the via­bil­ity of the euro, first across the pages of the Finan­cial Times and now at big-​​time roundup site Project Syn­di­cate. It’s not an out­right attack on the cur­rency, but it’s not far off:

Rec­og­niz­ing the need, the last Ecofin meet­ing has, for the first time, com­mit­ted itself “to safe­guard finan­cial sta­bil­ity in the euro area as a whole.” But Ecofin has not yet found the mech­a­nism for doing so, because the cur­rent insti­tu­tional arrange­ments do not pro­vide one – although the Lis­bon Treaty estab­lishes a legal basis for it.

But this is polit­i­cally impos­si­ble at present, because Ger­many is adamantly opposed to serv­ing as the deep pocket for its prof­li­gate part­ners. There­fore, makeshift arrange­ments will have to be found.

So makeshift assis­tance will be suf­fi­cient to allow Greece to suc­ceed, but that leaves Spain, Italy, Por­tu­gal, and Ire­land. Together they con­sti­tute too large a por­tion of the euro zone to be helped out by makeshift arrange­ments. The sur­vival of Greece still leaves the future of the euro in ques­tion. Even if the EU han­dles the cur­rent cri­sis, what about the next one?

As he did against the pound in 1992 and the Hong Kong dol­lar and the Russ­ian ruble in 1998, George Soros has pub­lished an edi­to­r­ial pub­licly attack­ing the euro  even as short sales of the euro hit an all-​​time high. In the frame­work of his­tor­i­cal crises involv­ing both a domes­tic and a  foreign-​​exchange ele­ment, the impli­ca­tions are clear: the Greek cri­sis may yet evolve into a mon­e­tary cri­sis as well, and some­one may be in posi­tion to profit from it.

(It’s true that the FT arti­cle review­ing the shorts against the euro is some­what san­guine about the actual data. I’m not say­ing that it’s at a crit­i­cal level yet; just sug­gest­ing that it might head in that direction.)

In Hong Kong, a staunch defense of the cur­rency at the expense of the domes­tic econ­omy averted mas­sive pri­vate defaults and reduced the length of the reces­sion which fol­lowed its cri­sis. In Rus­sia, a fail­ure to defend the cur­rency coin­cided with a large default to pro­duce a last­ing eco­nomic depres­sion. In Britain, the pound col­lapsed, but because the under­ly­ing econ­omy was strong, the deval­u­a­tion actu­ally aided the restora­tion of domes­tic equi­lib­rium. Should the Euro come under full-​​bore spec­u­la­tive pres­sure, it’s not clear where the Euro­pean Union would fall.

(Photo credit: griz­zly­groundswell)