George Soros: How to Avoid a Great Depression

Posted by Cori O'Donnell - Thursday, September 15th, 2011

Billionaire investor George Soros advises policymakers to prepare for Greece, Portugal and perhaps Ireland to leave the euro zone.

The debt crisis in Europe has unleashed the risk of a Great Depression. Soros suggests that euro zone leaders need to adopt a series of policy measures, and create a common treasury.

“It appears the authorities have reached the end of the road with their policy of 'kicking the can down the road'," Soros said in an article for the New York Review of Books and Reuters.com.

"Even if a catastrophe can be avoided, one thing is certain: the pressure to reduce deficits will push the euro zone into prolonged recession. This will have incalculable political consequences,” said Soros.

Economists and policymakers are convinced that it won’t be long before Greece will have to default. The country continues to fall behind on its fiscal targets after two EU/IMF bailouts.

Italy and Spain are faced with both public and bank debts as well as weak growth. This raises the concern that the two countries’ economies may be too large for Europe’s rescue fund to bailout.

Soros shares four policy measures recommendations, as shared by CNBC.com, to help with this European financial crisis:

  • Bank deposits have to be protected to prevent bank runs in weaker states;  
  • Some banks in the defaulting countries have to be kept functioning to keep their economies afloat;  
  • The European banking system would be recapitalized and put under European-, as distinct from national-, supervision;  
  • Government bonds of other deficit countries would have to be protected.  

Soros says that the breakdown of the euro, thorough all of this, must be avoided. The euro is a common currency among many countries and its breakdown would “…cause a meltdown beyond the capacity of the authorities to contain.”

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