Buffett & Soros weigh into the eurozone crisis

7th June 2012

Last night Buffett expressed concerns about the lack of fiscal union, while Soros warned at the weekend that Germany has just three months to save the euro.

Buffett referenced Abraham Lincoln when speaking about Europe, saying that a house divided cannot stand, as reported by Dow Jones Newswires.

Warren Buffett

The chairman of Berkshire Hathaway told the Economic Club of Washington: "They can't have a common currency, but not common fiscal policy or culture.

"It can't be half slave and half free…European leaders need to resolve some of the union's weaknesses."

Currently, the 17 nations using the euro share the same central bank and interest rate policies, but follow wildly different national tax and budget policies, as explained in the Guardian. Buffett has now added his voice to those calling for closer integration throughout Europe.

Buffet was more optimistic about the US economy, saying that he saw the odds of a renewed recession in the US as "very low".

However, he did warn that could change if the effects of Europe's financial crisis were to "spill over in a big way".

George Soros

Meanwhile Soros had Germany firmly in his sights, when he forecast a "three months' window" for the authorities to correct mistakes and reverse the current trends.

Speaking at the Festival of Economics in Trento, Italy, at the weekend, Soros said: "By the authorities I mean mainly the German government and the Bundesbank because in a crisis the creditors are in the driver's seat and nothing can be done without German support.

"The crisis is likely to come to a climax in the [autumn]. By that time, the German economy will also be weakening, so that Chancellor Merkel will find it even more difficult than today to persuade the German public to accept any additional European responsibilities.

"That is what creates a three-month window."

Mr Soros asserted that the euro crisis is "more of a banking problem and a problem of competitiveness" than a fiscal problem.

More downgrades…

German banks faced their own problems today, highlighting that even the strongest economies in the euro zone will be affected if the crisis turns into a catastrophe.

Ratings agency Moody Investors Service downgraded six German banking groups along with Austria's three largest banks, citing "increased risk of further shocks emanating from concerns if the current euro zone problems escalate".

While acknowledging the relative strength of the German and Austrian economies, Moody's still said that the asset quality for these German lenders is at risk if the euro area debt crisis worsens, or the global economic outlook weakens.

 "We wanted to identify vulnerabilities from further potential shocks from the euro area debt crisis and how this would affect investor confidence in institutions across Europe," said Moody's Managing Director for banking, Carola Schuler, according to Reuters.

The ratings agency was particularly concerned about a potential slip in the value of banks' portfolios of international commercial real estate, global ship financing, euro zone periphery sovereign bond and private sector assets, as well as a backlog of structured credit products, Schuler said.

Commerzbank, Germany's second biggest lender, was one of the banks in the firing zone as its long-term rating was cut from A2 to A3. Commerzbank was also assigned a negative outlook, which means that Moody's is considering a further cut.

The five other German banking groups affected are DekaBank, DZ Bank, Landesbank Baden-Wuerttemberg, Landesbank Hessen-Thueringen and Norddeutsche Landesbank.

A decision on Deutsche Bank, Germany's biggest bank, has been delayed according to coverage by the BBC.

How can we limit expanding disaster in the eurozone

Buffett and Soros propose different approaches to limit expanding disaster in the eurozone. While Buffett recommends fiscal union, Soros has set his stall against the austerity measures Germany has been so keen to impose.

Soros argued that the authorities "have applied the wrong remedy: you cannot reduce the debt burden by shrinking the economy – only by growing your way out of it".

As such, he joins the "increasing number of politicians in the euro zone also arguing for less austerity and more promotion of growth", according to CNBC.

Otherwise Mr Soros warns that Germany risks the destruction of the European Union and a "lost decade", according to The Daily Telegraph.

Soros said: "In the 1980's Latin America suffered a lost decade; a similar fate now awaits Europe. That is the responsibility that Germany and the other creditor countries need to acknowledge."

 

More on Mindful Money:

How to survive the Eurozone apocalypse

Is the Eurozone crisis changing Europe for the better?

Who's to blame for the Eurozone crisis? We all are

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