Financial heavyweights from both West and East urged the
beleagured Eurozone to create a trans-national treasury as a
necessary step toward calming its escalating sovereign debt
crisis. Legendary U.S. investor George Soros and China
Investment Corporation President Gao Xiqing agreed during a
seminar at the IMF-World Bank annual meeting that closer fiscal
union is needed to maintain the euros viability.
The alternative is a break-down of the world financial
system as we know it, Soros warned. You cant
unscramble the omelet now that all assets and liabilities are
in the common currency.
But Soros and Gao differed in their level of optimism that
the 17 nations sharing the euro can make essential reforms in
time. Im quite confident that under the pressure of
the crisis the new treasury will develop, Soros said. Gao
was less sanguine. The fact that something means the end
of the world does not mean it isnt going to happen,
he quipped. We all know we need a fiscal union to solve
the current problems. So why dont we have it?
He suggested that part of the reason lies in a clash of
cultures between different countries now sharing the same
money. You have people in the south of Europe who hope to
work five hours a day, three days a week, and people in the
north who want to work 80 hours a week, he observed.
Soros, Gao and other panelists joined the emerging
Washington consensus that the Eurozones current travails
are more political than financial, strictly speaking. The
good news is that the scale of the crisis is within
Europes resources, said Nemat Shafik, deputy
managing director of the IMF. The Funds estimate for
total European bank exposure to troubled sovereign debt, for
instance, is euro 300 million, much less than the U.S.
government made available to its banking sector through the
2008 TARP program. Moreover, many of the banks carrying these
risky assets can still raise capital in private markets, though
there could be a place for public intervention,
But the panel itself illustrated the difficulty of acting
decisively even on the most pressing question of how to resolve
Greeces excessive national debt. Olli Rehn, commissioner
for economic and monetary affairs at the European Commission,
insisted that Greece should not and will not face a
default. There will be no such catastrophe on European
soil. Soros differed. It is very important that the
possibility of default be prepared for, he said,
With a managed default, the rest of the Eurozone can be
ring-fenced and the banking system shored up.