George Soros, one of the most outspoken critics of Germany's proposed austerity policies to solve the European debt crisis, said the euro was here to stay and would gain as other nations tried to devalue their currencies.
Soros, who made US$1 billion shorting the British pound in 1992, said that while the causes of the euro crisis had not been solved, the acute phase of the turmoil was over. Germany would always do "the minimum" to preserve the currency, Soros said at the World Economic Forum in Davos, Switzerland on Thursday. He forecast a "tense" two years for the euro region.
Yields on sovereign debt of countries from Spain to Greece have fallen since European Central Bank president Mario Draghi announced an as-yet-untapped bond-purchase plan in September last year. Soros, reiterating his view that austerity is the wrong policy at this time, said the German insistence on tight fiscal and monetary policies meant the euro would appreciate as other countries pursued more expansive policies, a situation that might lead to a currency war.
"Currencies have been remarkably stable in the last few years," Soros said. "Now there is the making of more fireworks, more volatility."
Soros said at the same event last year that the German-led policies risked creating tensions that could destroy the European Union. In a speech in April, he said the Bundesbank, Germany's central bank, was taking steps to limit potential losses if the euro splintered, creating a "self-fulfilling prophecy". Bundesbank president Jens Weidmann has denied taking such steps, calling the allegations "ridiculous".
Weidmann this week criticised moves by Japan's Prime Minister Shinzo Abe to devalue the yen, saying such measures risked "politicising" the yen's exchange rate. Soros said the extent to which Japan could push its currency lower would be limited by what the US was willing to tolerate. The momentum is for the "euro to rise and yen to fall", Soros said. "I generally don't know how far things go but I can see which way they are going."
Soros said countries could only grow their way out of excessive debt and should avoid policies that led to contractions.
The US, had "pretty good underlying dynamics", he said. "If the fiscal cliff and those issues are resolved, and the US economy picks up, I think interest rates are likely to rise."
Soros, who has a US$21.2 billion fortune, according to the Bloomberg Billionaires Index, said there was "definitely" no near-term risk of credit bubbles.
"There is an asset bubble in China in real estate, sustained by lending in the quasi-banking system," he said. "The real estate market in China is rising again. That, I think, is a potential bubble because of the source of financing."