‘Incestuous’: Soros has taken aim at the relationship between national authorities and banks in the EU. Photo: Michel EulerGeorge Soros, the billionaire investor, believes the banking sector is a “parasite” holding back the economic recovery and an “incestuous” relationship with regulators means little has been done to resolve the issues behind the 2008 crisis.
“The banking sector is acting as a parasite on the real economy,” Mr Soros said in his new book “The Tragedy of the European Union”.
“The profitability of the finance industry has been excessive. For a while 35 per cent of all corporate profits in the United Kingdom and the United States came from the financial sector. That’s absurd.”
Mr Soros outlined how the problems that caused the Eurozone economic crisis remain largely unresolved.
“Very little has been done to correct the excess leverage in the European banking system. The equity in the banks relative to their balance sheets is wafer thin, and that makes them very vulnerable.
“The issue of “too big to fail” has not been solved at all.”
The proposed solution of a European banking union does not address the underlying problems, Mr Soros adds.
“A real danger to the financial system is the incestuous relationship between national authorities and bank managements. France in particular is famous for its inspecteurs de finance, who end up running its major banks. Germany has its Landesbanken and Spain its caixas, which have unhealthy connections with provincial politicians.”
In his new book Mr Soros outlines, in a series of interviews with Dr. Gregor Peter Schmitz, how he believes the European Union is in danger of becoming a thing of the past unless its flawed structure is reformed.
The German economy at the regions heart could also be its biggest weakness.
“What was successful in Germany before the crisis will not be successful as a prescription for the rest of Europe in the years ahead.
“In German the word Schuld has a double meaning (both “blame” and “debt”). So it is natural (selbstverstandlich) to blame the debtor countries for their own misfortunes,
“Germany’s tone, is sometimes self-righteous and even hypocritical…. In 2003 Germany was among the first countries to break the eurozone rules. “
The prospect of Germany leaving the eurozone is very real and it would have serious implications as the euro would depreciate sharply and deutsche mark would go through the roof, Germany would find out how painful it is to have an overvalued currency.
Mr Soros, who famously “broke the Bank of England” by betting against the pound during the 1992 sterling crash, talks candidly about his most successful trade.
“I have a clean conscience. The big events in which I participated would have occurred sooner or later, whether I speculated on them or not.”