In five short but pithy words financier George Soros recently caused a huge stir that set politicians and bankers arguing from Europe to the US and International Monetary Fund - "Germany must lead or leave" the euro, he declares in the New York Review of Books in a "must-read" article analysing how the European dream risks turning into a nightmare.
Soros knows a thing or two about currencies and markets. He became a legend as "the man who broke the Bank of England", making US$1.1 billion by betting against the British pound in 1992 when it was forced to devalue and leave the European exchange rate mechanism, the forerunner to the creation of the euro.
These days Soros has become more of a philosopher and philanthropist, giving away US$8 billion to good causes. In his new role he brings decades of understanding about economies, currencies and markets and ways they dance with disaster.
He has become not so much of a guru but more of oracle warning of the dangers of the way the global economy is heading. His article was entitled grimly: The tragedy of the European Union and how to resolve it.
Since he wrote it, leaders of the euro zone have repeated the mantra that the euro is safe and taken some steps to safeguard it.
Soros says in an updated internet preface to his article that the promise of Mario Draghi, the president of the European Central Bank, to buy unlimited quantities of government bonds of debtor countries of up to three years in maturity means that, "the continued survival of the euro is assured".
But depending on how the politics plays out, these actions to preserve the euro could continue growing the seeds of destruction both of the currency and of the European Union itself.
Soros' underlying theory is still sound, and his fears remain valid. He points out that the European Union was the embodiment of an open society, a voluntary association of equal states that surrendered some sovereignty for the common good.
But the euro crisis has changed things and divided member countries "into two classes - creditors and debtors - with the creditors in charge, Germany foremost among them".
Soros says this was not a deliberate scheme but a result of policy mistakes when the euro was introduced. The most critical was that, "the euro was an incomplete currency - it had a central bank, but not a treasury".
Financial markets did not realise the issue until the Greek crisis - that without the right to print their own money, countries risked default. When it was realised, Germany could have stepped in, but Berlin was reluctant to take on new liabilities, so did the minimum,
The critical moment came when German Chancellor Dr Angela Merkel, in the aftermath of the Lehman Brothers crisis, declared that the guarantee that no other systematically important financial institution would be allowed to fail "should be given by each country acting separately, not by the European Union acting jointly. That was the first step in a process of disintegration that is now threatening to destroy the European Union", writes Soros.
The markets realised that not all government bonds were created equally, and weak countries were forced to pay penal rates. Germany self-righteously claimed that other countries should do as Germany did after its crisis following reunification, basically an austerity package and structural reforms.
But, as Soros points out, conditions then were easier and the world was growing and Germany benefited from consumption and housing booms in the rest of Europe. But today: "Fiscal austerity in Europe is exacerbating a global trend and pushing Europe into a deflationary debt trap."
Soros offers a two-pronged suggestion. "The best course of action is to persuade Germany to choose between becoming a more benevolent hegemon, or leading nation, or leaving the euro. In other words, Germany must lead or leave."
The role of hegemon would involve Berlin in establishing a level playing field between debtor and creditor companies and aiming at nominal growth of 5 per cent a year, Soros suggested, "in other words allowing Europe to grow its way out of excessive indebtedness".
If Germany is not prepared to lead, then it should leave the euro, which would be less costly than the slow squeeze of countries out of the currency and the lingering death of the European dream, with political bitterness that could have devastating consequences.
The solution of Soros is simple, though he underestimates the political fallout that would follow even if Germany could be persuaded to leave the euro.
Sadly, it is even harder to see Berlin exercising the generous option and there seems to be no leader inside or outside Europe who can urge Berlin to reconsider and live up to the hopes of Europe.
The Draghi option of buying debtor countries' bonds requires the affected countries to go through the mill of agreement with the European Stability Facility and putting themselves under the supervision of the troika (the executive committee of the European Union, the ECB and the IMF). You can feel the whiff of austerity just mentioning the troika.
Austerity on its own is not only not working, but is a political and economic millstone around the necks of the victim countries and of Europe. Aiming for growth would give hope and could also help revive the European ideal, after which it might be possible to create a full European fiscal and currency union. Otherwise, austerity will suffocate Europe.Topics: George Soros IMF ECB Germany