George Soros: Coronavirus could END the EU!

George Soros is the second largest ‘philanthropic’ donor in the world behind Bill Gates. The International Financier is well known for promoting liberal causes throughout the globe with his Open Society foundation. He has been a vocal opponent of both Brexit and Donald Trump and now in a wide ranging interview with www.project-syndicate.org he has explained how the EU faces serious issues around dealing with Coronavirus:

 

GREGOR PETER SCHMITZ (INTERVIEWER): You have seen many crises. Is the Covid-19 pandemic comparable to any previous one?

GEORGE SOROS: No. This is the crisis of my lifetime. Even before the pandemic hit, I realised that we were in a revolutionary moment where what would be impossible or even inconceivable in normal times had become not only possible, but probably absolutely necessary. And then came Covid-19, which has totally disrupted people’s lives and required very different behaviour. It is an unprecedented event that probably has never occurred in this combination. And it really endangers the survival of our civilisation.

What role does the European Union – your home that you care about so much – play in this power struggle?

SOROS: I am particularly concerned about the survival of the EU because it is an incomplete union. It was in the process of being created. But the process was never completed and that makes Europe exceptionally vulnerable – more vulnerable than the US not just because it is an incomplete union but also because it is based on the rule of law. And the wheels of justice move very slowly, while threats such as the Covid-19 virus move very fast. That creates a particular problem for the European Union.

Germany’s Federal Constitutional Court exploded a bombshell last week with its latest ruling on the European Central Bank. How seriously do you take it?

SOROS: I take it extremely seriously. The ruling poses a threat that could destroy the European Union as an institution based on the rule of law, precisely because it was delivered by the German constitutional court, which is the most highly respected institution in Germany. Before it delivered its verdict, it had consulted with the European Court of Justice and then decided to challenge it. So you now have a conflict between the German Constitutional Court and the European Court of Justice. Which court has precedence?

Technically, the European Treaties give the ECJ supremacy in this area. That is very clear.

SOROS: Right. When Germany joined the EU, it committed itself to abide by European law. But the ruling raises an even bigger issue: if the German court can question the decisions of the European Court of Justice, can other countries follow its example? Can Hungary and Poland decide whether they follow European law or their own courts – whose legitimacy the EU has questioned? That question goes to the very heart of the EU, which is built on the rule of law. Poland has immediately risen to the occasion and asserted the supremacy of its government-controlled courts over European law. In Hungary, Viktor Orban has already used the Covid-19 emergency and a captured parliament to appoint himself dictator. The parliament is kept in session to rubber-stamp his decrees, which clearly violate European law. If the German court’s verdict prevents the EU from resisting these developments, it will be the end of the EU as we know it.

Will the ECB need to change its policies after this ruling?

SOROS: Not necessarily. This ruling only requires the ECB to justify its current monetary policies. It has been given three months to justify the actions it has taken. That will consume a lot of the ECB’s attention when it is the only really functioning institution in Europe that can provide the financial resources needed to combat the pandemic. Therefore, it should focus its attention on helping Europe to establish a Recovery Fund.

Do you have any suggestions where these resources could come from?

SOROS: I have proposed that the EU should issue perpetual bonds, although I now think that they should be called “Consols”, because perpetual bonds have been successfully used under that name by Britain since 1751 and the United States since the 1870s.

Perpetual bonds have become confused with “Coronabonds,” which have been rejected by the European Council – and with good reason, because they imply a mutualisation of accumulated debts that the member states are unwilling to accept. That has poisoned the debate about perpetual bonds. I believe that the current predicament strengthens my case for Consols. The German court said that the ECB’s actions were legal because they adhered to the requirement that its bond purchases were proportional to the member states’ shareholding in the ECB. But the clear implication was that any ECB purchases that were not proportional to the ECB “capital key” could be challenged and deemed ultra vires by the court.

The kind of bonds that I have proposed would sidestep this problem, because they would be issued by the EU as a whole, would automatically be proportional, and would remain so eternally. The member states would have to pay only the annual interest, which is so minimal – at, say, 0.5 per cent – that the bonds could be easily subscribed by the member states, either unanimously or by a coalition of the willing.

The president of the European Commission, Ursula von der Leyen, says that Europe needs about €1 trillion to fight this pandemic, and she should have added another €1 trillion for climate change. Consols could provide those amounts if the EU’s member states authorised them.

Unfortunately, Germany and the “Hanseatic League” states led by the Netherlands are adamantly opposed. They should think again. The EU is now considering doubling its budget, which would provide only about €100bn and yield only one-tenth of the benefit that perpetual bonds could provide. Those who want to keep their EU budget contribution to a minimum ought to support Consols. They would have to authorise certain taxes, like a financial transaction tax, that would provide the EU with its own resources, assuring its AAA rating, but the taxes would not have to be imposed – their place would be taken by Consols. Both these parties and the rest of Europe would be much better off. Annual payments of €5bn, whose present value would continuously decline, would give the EU €1 trillion that the continent urgently needs – an amazing cost-benefit ratio.

When the EU relaxed its rules against state aid, Germany submitted more than half of the requests. Some people argue that this undermines the principles of a single market because it gives Germany an unfair advantage. What do you think?

I agree with their argument. It is particularly unfair to Italy, which was already the sick man of Europe and then the hardest hit by Covid-19. Lega party leader Matteo Salvini is agitating for Italy to leave the euro and also the European Union. Fortunately, his personal popularity has declined since he left the government, but his advocacy is gaining followers. This is another existential threat for the EU. What would be left of Europe without Italy, which used to be the most pro-European country? Italians trusted Europe more than their own governments. But they were badly treated during the refugee crisis of 2015. That’s when they turned to Salvini’s far-right Lega and the populist Five Star Movement.

You sound very pessimistic.

Far from it. I recognise that Europe is facing several existential dangers. That is not a figure of speech; it is the reality. The verdict of Germany’s Federal Constitutional Court is only the most recent challenge. Once we recognise this, we may be able to rise to the occasion. We can take exceptional measures that are appropriate to the exceptional circumstances we’re in. That certainly applies to Consols, which should never be issued in normal times, but are ideal right now. As long as I can propose measures like issuing Consols, I won’t give up hope.

 

George Soros, Founder and Chair of the Open Society Foundations, is the author, most recently, of In Defense of Open Society (Public Affairs, 2019). Gregor Peter Schmitz is Editor-in-Chief of the Augsburger Allgemeine. They are the co-authors of The Tragedy of the European Union.

 

The EU is also facing considerable pressure after it’s response to the situation in Italy with Lega Leader Matteo Salvini saying that Italy should exit the embattled bloc.

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