Soros Says a Euro Exit Mechanism Is ‘Probably Inevitable’ Amid Debt Crisis

Billionaire investor George Soros. Photographer: Stephen Yang/Bloomberg

By Zoe Schneeweiss - Jun 27, 2011 5:39 AM ET

Billionaire investor George Soros said it’s “probably inevitable” that a mechanism will be put in place to allow weaker economies to exit the euro.

“There’s no arrangement for any countries leaving the euro, which in current circumstances is probably inevitable,” Soros, 80, said at a panel discussion in Vienna yesterday on whether liberal democracy is at risk in Europe. “We are on the verge of an economic collapse which starts, let’s say, in Greece, but it could easily spread. The financial system remains extremely vulnerable.”

Concern Greek lawmakers will fail to pass austerity measures to ensure the next installment of the nation’s bailout is roiling global markets and pushed the euro to a record-low against the Swiss franc last week. Greece is one of three euro- region members to have sought international bailouts amid the sovereign debt crisis.

“I think most of us actually agree that” Europe’s crisis “is actually centered around the euro,” said Soros. “It’s a kind of financial crisis that is really developing. It’s foreseen. Most people realize it. It’s still developing. The authorities are actually engaged in buying time. And yet time is working against them,” he said.

The euro was created in 1999, with 11 member states -- Germany,France, Italy, Belgium, the Netherlands, Luxembourg, Finland, Austria,Portugal, Spain and Ireland. Greece was the 12th country to adopt the shared currency in 2001, while Estonia is the newest member of the euro region, joining this January.

Winning Bet

The euro erased its decline versus the dollar to trade little changed at $1.4191 as of 10:14 a.m. in London. The 17- member common currency earlier slid as much as 0.6 percent to $1.4103, the weakest since June 16.

Soros is chairman of Soros Fund Management LLC, which has about $28 billion in assets. He’s best known for reportedly making $1 billion in 1992 on a bet that the U.K. would fail to keep the pound in the European exchange-rate system that pre- dated the euro.

He also expressed concern the currency union would dissolve on Jan. 26 at the World Economic Forum in Davos, Switzerland. He said then that European policy makers must address their two- speed economy or risk the euro collapsing, though he added this was unlikely to occur.

‘Plan B’

European Union leaders have vowed to stand behind Greece as long as Prime Minister George Papandreou, who won a confidence vote last week, pushes through his 78 billion-euro ($111 billion) package of budget cuts and asset sales. Investors are concerned a default would trigger contagion that would engulf other euro-region members including Ireland, Portugal and Spain.

Europe’s leaders should look for alternative strategies to solve the debt crisis, Soros told the Vienna panel, which also included Former Belgian Premier Guy Verhofstadt.

Because the “survival of the EU is of vital interest to us all,” there’s a need for a “Plan B,” he said, explaining that this could include EU-wide taxes, a “banking system guaranteed by European institutions, not a bunch of national banking systems,” or a financial transaction tax.

“You need a Plan B and there’s no Plan B at the moment,” Soros said. Instead, “authorities are sticking to the status quo” and not “recognizing that there are fundamental flaws that need to be corrected,” he said.

To contact the reporter on this story: Zoe Schneeweiss in Vienna atzschneeweiss@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong atParmstrong10@bloomberg.net

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