← LSE: Public lectures and events
LSE: Public lectures and events
Tragedy of the European Union: Disintegration or Revival?: how Europe must now choose between economic and political revival or disintegration
01:28:40
Loading summary
Transcript104 lines
- [00:00]
A
Ladies and gentlemen, welcome to the London School of Economics and Political Science. I'm Craig Calhoun, the director of the lse, and it's my privilege not only to welcome you, but to welcome our distinguished panel with George Soros, one of our most distinguished alumni, and to welcome George back to the LSE today. It's great to have you here, George. It's a pleasure also to welcome those who are watching this event online as we have a full house in the seats, and those who are connecting to the LSE from long distances for the event. I'll keep my remarks brief as I know you're not here to see me. We've had the pleasure of hosting George Soros at the LSE for events in the past and we're very pleased that he's decided to make us another visit, this time to mark the publication of a new book, Tragedy of the European Union. Disintegration or Revival? It's a book about how Europe must now choose between economic and political revival or disintegration. It's a book with a wonderful methodological appendix on, among other things, of the place of social science in science and in practical affairs. And I recommend it strongly to you. Copies are available outside. George Soros was born in Budapest. Having survived the Nazi occupation there, he left Hungary soon after the war for Great Britain, where he enrolled at the lse. George studied for both undergraduate and graduate degrees at the lse, working with one of the most distinguished faculty ever at the lse, Professor Karl Popper. You will all know of George's success working in financial markets and the rewards that has brought him and brought the world. Because what is inspiring is, among other things, how George has used that success to be a prominent supporter of democratic ideals and causes for more than 30 years. His philanthropic organization, the Open Society Foundations, supports democracy and human rights in over 70 countries. George is also the author of several best selling books including the crash of 2008 and what it Means, the New Paradigm for Financial Markets and the Bubble of American the Cost of Bush's War in Iraq. I would like to make clear that George's books aimed at a broader audience also continue in some part his studies at the LSE and in this new book, among other things, point out that as great as his mentor Karl Popper was that we can go beyond Karl Popper in certain ways. And George has pressed further on the question of the status of economics than Popper did originally. It is a terrific privilege for the LSE to have you back with us, George. This afternoon's event will See George in conversation with Anatole Koletsky, who is an award winning journalist and financial economist who's written since 1976 for, for the Economist, the Financial Times and the Times of London. Before joining Reuters. The discussion will be moderated by Professor Mary Calder, who is not always a moderate, but in this role will be, and who is professor of Global Governance and Director of the Civil Society and Human Security Research Unit here at lse. For those Twitter users in the audience, the hashtag for today's event is LSE Soros. As usual, after the discussion there will be a chance for you to put your questions to our speakers. But for now, please join me again in welcoming George Soros and Anatol Koletsky to the lse.
- [04:12]
B
Well, it's wonderful to have George back at the LSE and, and I wanted, I meant to bring a copy of the book in and wave it, but you can look at it outside because I really want to recommend it. I've been reading it over the last couple of days and it does represent a very succinct account of George's views. It's a very easy read. It's written in very. Everyone can understand what he's saying and what he's saying is so important to the present that I hope when you've read it, you'll think I've got to get engaged in the debates about Europe. So to find out more about what he was saying in the book, Anatole's going to ask him questions for about 20 minutes or so and then we'll be able to have questions and answers from the floor.
- [05:02]
C
Okay, well, thank you very much, Mary, and thank you again also for me, for all being here. I want to talk, or we want to talk mostly I suppose, about the subject of the book, Europe and the euro and so on, but with all the other things that are going on in the world and in Europe in particular over the last few weeks, I think people would be very disappointed if we didn't touch on the more dramatic events that are going on in the east as well. So we certainly ought to discuss Ukraine and Russia. Russia and also I think Britain's relationship to all this, to Europe, to the EU and that debate. But let's begin with the subject of the book and the issue that at least until the last few weeks, has preoccupied us all almost to the point of obsession, the euro crisis. Now, when we look at the euro crisis from today, as opposed to the vantage point of three or four months ago, even when you were writing this book, it that although perhaps the crisis has not been resolved, it's been managed, the worst seems to be over. The Euro has not broken up and crucially it's being managed without many of the measures that you and many people like yourself, including me, have suggested. They haven't introduced euro bonds, they haven't created a transfer union. The Germans, who are the kind of key actors in your. The benign hegemons of Europe, have not really deviated from their position of tough love to the debtor countries. And yet Spain and Italy are now paying interest rates that are at all time lows. It appears that the Euro has been saved. So have they perhaps proved that the German approach, the Merkel tough love approach, was the right one after all?
- [07:14]
D
No, I disagree with that because the Euro is here to stay. But that creates a real problem for the European Union. The Euro crisis has already transformed the European Union from what it was originally intended into something radically different. The original intention was to form a union of equal and sovereign states that believe and are dedicated to the principles of an open society and were willing to sacrifice part of their sovereignty for the common good. And the Euro crisis has already transformed it into something very different, which is basically a relationship between creditors and debtors in which the debtors have difficulty in meeting their obligations and that puts the creditors in charge and that divides European Union into two classes of members. And the relationship between them is neither voluntary nor. Equal.
- [09:01]
C
So you're saying that this is not just a financial relationship of inequality, this has become a power relationship of inequality?
- [09:10]
D
That's right. And I mean to go to an extreme, you could describe today the Euro arrangements at debtors prison from which they can't escape.
- [09:28]
C
Is that something that is something that is recognized to some extent by the markets. Nevertheless, it seems that from the financial and economic standpoint, it's a stable. It's perhaps not a satisfactory equilibrium, but it has become a stable equilibrium. Or is that too complacent?
- [09:53]
D
Well, basically, as I say, the financial crisis is over because the question whether Euro is stable or is here to stay or not has been resolved. It's definitely here to stay as long as the European Union is here, which is not necessarily forever. But within that situation, the original purpose of the euro European Union has been lost.
- [10:42]
C
Given though that there is no longer the financial pressure on the euro and the threat of an imminent euro breakdown, what is the incentive, if any, for the leadership of Europe, and I guess particularly for the leadership of Germany to change anything?
- [11:05]
D
Well, I mean, there has already been a modification in the German attitude Because the policy that Germany has been imposing on Eurozone policy of austerity was counterproductive and it made the situation of the debtor counties worse. And they have actually more or less tacitly acknowledged that. And they have stopped pushing the dato countries under the water and therefore they're getting some oxygen and they're beginning to breathe. And that's what you see in the financial markets. And so the Eurozone as a whole has hit bottom. And when you hit bottom, you have a natural rebound in the financial markets. And that's what has happened in the last few months and is continuing. But within that bottoming, debt has been brought about by a continuing aggravation of the divergence between creditors and debtors is not an even playing field because in addition to all the accumulated debt, the debtor countries have a continuing handicap of having to pay more for credit. And that's not only for the government bonds, but also for business. And that is a serious, I mean it's not a very big gap and it has narrowed. So in that sense there's been some relief, but it's still an ongoing additional burden that they have to absorb every year.
- [13:24]
C
And that is therefore in your view going to continued to widen the gap between the more successful and the struggling countries. Whereas previously the history of Europe was a convergence, we're now into a divergence.
- [13:40]
D
Phase and you can see how the, what the bottom is how the stability is achieved by Germany moving ahead and Italy falling less. Then Germany is rising and that's how you get the evening up.
- [14:02]
C
But for Europe as a whole, as you've said, the situation seems to have stabilized. And yet in a number of the articles you've written recently, you've predicted very firmly an extremely depressing long term outlook. I think you've said that at best Europe under the present arrangements should anticipate a decade or more of stagnation, at least as bad as what has happened in Japan. Are you still confident of that?
- [14:38]
D
Well, I think this is now becoming recognized the accepted wisdom, namely the threat of deflation. It's now recognized by practically all the authorities, with the possible exception of the legal department of the Bundesbank, but certainly recognized by the ecb. And it's expected that something has to be done. But so the problem is recognized, but actually a solution hasn't been found. The solution that the other central banks found was quantitative easing. And so everybody expects that the ECB may also be forced moving in there. But actually the problem in the Eurozone is different from what it was in let's say in the United States, because the ECB has been very successful in pumping money into the banking system. But the money doesn't go from the banking system it into the real economy. The banking system is currently not functioning as an efficient transmission mechanism. And that's because the banks haven't yet been, let's see, the balance sheets haven't been cleaned up. They are lagging in that respect both between, both behind Britain and, and the United States. And now they are facing asset quality review and then a stress test. And for a bank to have to sell additional shares at a discount from asset value is a delusion for the shareholders. And therefore their first objective is to avoid that. And that means that they are trying to gather all the equity they can get hold of to pass the stress test.
- [17:26]
C
So they're still trapped in a vicious circle. But this is something that Mario Draghi has talked about a lot himself, is the failure of the transmission mechanism. Do you think there's a prospect that this transmission mechanism is on the way to being repaired, which is what the ECB would like us to believe? And in that case, is the problem actually going to be resolved? And can Europe look forward to a different outlook?
- [17:51]
D
Well, I think the, as I say, the problem is understood and the remedy is to find ways of pumping additional monies into the small and medium enterprises that are particularly hurting. Unfortunately, that will take a long time because somebody has to take the equity risk. And here there is a role for the private sector. Actually there is a role for hedge funds, among others, because that's really how you can. They are qualified to take the equity risk that bureaucratic organizations are not. So the European Investment bank has to be involved and you need to find some incentives to get equity investors involved by giving them additional credit, concessional credit facilities.
- [19:22]
C
And these are the kind of changes that might well be acceptable to some of the political leadership in Europe and even in Germany. But I wanted to just step back now to the relationship between these financial and economic problems and the politics, which is what a lot of your book is about. Well, you've suggested in your book, and you said right at the beginning, that your concern is that what started off as a financial crisis and an existential threat to the euro is turning into a political and an existential threat to the political future of Europe. You've been criticized a lot in Germany for putting so much of the stress on Germany's responsibility for this unequal relationship between the creditors and debtors and so on. Why do you think it is appropriate to emphasize so much the German role in Europe as opposed to the collective responsibility of all of all the European states to move forward.
- [20:35]
D
Well, I'd like to distinguish between blame and responsibility because I think the responsibility is on Germany. But I'm not really blaming them because they don't themselves understand and acknowledge the situation they are in because they are in effect in charge and they find that very difficult to accept because they went out of their way to avoid that position and they are still very reluctant to accept it. And I'm urging them to recognize reality that they have emerged as the dominant economic power, the ones with the best credit rating, and it gives them a dominant position and they have to live up to it. And that is, as I said, that's where the problem is, because they've gone out of their way partly because of historical reasons to avoid that and it's still very much the dominant position. But I'm also greatly encouraged that the sort of having emerged as the victors, there is now a really more reasonable rational discussion emerging in Germany. There are various groups that are coming forward with various ideas to correct the situation. So I'm hopeful of a reasoned discussion now. And I'm also rather optimistic that the book comes at a time when the public is more ready for it than it was in the past.
- [22:51]
C
Well, the other thing that makes the public certainly I would think in Germany and Central Europe, even more than in Britain, is forcing them to think again about the political relationships in Europe is of course, what's going on in the East. So let's just shift to that for a few minutes before we bring Mary into it. Do you think that to some extent, paradoxically, the real, the sudden danger which has emerged for the first time on the east eastern borders of Europe with Russia and Ukraine could lead to some kind of significant shift in both pan European and German politics that would actually lead to this next step of European unification that you've been talking about rather than discouraging.
- [23:56]
D
Yes, and my answer is a very firm yes. And I think actually Angela Mackel is in a very good position to lead that process because she comes from eastern Germany. She knows what the. Soviet system was. She understands the threat, I think, better than most people, and it gives her an opportunity to take that.
- [24:40]
C
But interestingly enough, she has been so far perhaps the main restraining influence on, for example, David Cameron and President Hollande in discouraging them from moving towards more aggressive either sanctions or even rhetoric about Russia. Do you think she has actually had the right approach in relation to European politics?
- [25:08]
D
I will not answer that question because I have not been. I was in Asia and I didn't follow it on a blow by blow basis as I did up till two weeks ago. But generally speaking, I think talk about sanctions, we have to be very, very careful. And there's a kind of an instinctive reaction that there's aggression and therefore you have to hit back. And I think we have to pause before hitting back. I think the right approach actually is to strengthen Ukraine and that requires actually a positive approach towards Ukraine. There is a package coming together to make up the hole that Russia was going to fill. And I think the IMF, under the leadership of the IMF, the financial authorities.
- [26:27]
C
This is the $15 billion.
- [26:28]
D
$15 billion, let's say that you need. But that's not enough because there has to be a positive support for Ukraine, particularly because you can expect beyond the military threat, which is a very serious one, also continued economic pressure from Russia because for Putin, it's existentially dangerous to him for the Ukrainian, the new Ukraine to succeed.
- [27:25]
C
Now you say the new Ukraine and you say, well, it's important to help Ukraine, but how can you help Ukraine when part of it, part of the country is occupied as long as part of the country is occupied by Russia? Is there a need to first evict Russia from the Crimea before any of this can happen?
- [27:46]
D
You cannot. This would be unrealistic to expect. And you also have to recognize that the Crimea is not an integral part of Ukraine. It was transferred to Ukraine by Khrushchev in 54 in an administrative decree. And it's Ukraine. Russia has really vital military, historical, etc. Claims on Crimea. It's only been part of Ukraine since 54. It was part of Russia much longer. It's the home of the warm water fleet of, of the Russian navy and so on. So Putin couldn't actually remain President of Russia and not. Take care of the national interests of Russia in Crimea. However, Ukraine, I mean Russia is also a signatory to the Budapest Protocol or agreement where the great powers, including Russia, guaranteed the territorial integrity of Ukraine, which included at that time Crimea, in order to encourage Ukraine to surrender its nuclear weapons to Russia. And there is no question that Russia is now violating that agreement.
- [30:12]
C
This is the argument. And so people like David Cameron are making the argument that this aggression cannot be allowed to stand, it's a violation of these agreements and so on.
- [30:24]
D
So there is a. There's bound to be. Just as Russia can't stop taking over Crimea, the West can't approve, it can't legitimize it without some negotiations. And so there is a diplomatic standoff where both sides have a real interest to keep it within diplomatic bounds. And that's where sanctions come in, because there is no chance of a military protection. The military forces underground are in Russia's favor. There's no way for the west to intervene military but are you suggesting the.
- [31:21]
C
Purpose of sanctions should be to get Russia out of Crimea, which you've just said is possible, or is it to deter them from moving any further and to make them cooperate with the remaining?
- [31:37]
D
Just as we have to accept the eventually, when the diplomacy has done its work, the facts on the ground will have to be accepted because you can't alter them. But the national interests of Ukraine, which are also important and the rights of the Crimean Tatars were desperately opposed to Russian rule, have also got to be respected. So there has to be some international. Presence protecting those interests.
- [32:28]
C
But you do see the. Well, from this little, very brief conversation, we've only talked about it for five minutes. You know, Lavrov and Kerry talk about it for hours and hours. There does seem to be the potential for a negotiated solution, one that recognizes, if you like, as you said, the existential interest of Putin not to he cannot withdraw from Crimea without essentially giving up. But equally the existential interests of the west in preserving the rest of Ukraine as a viable body.
- [32:58]
D
Yes, but there is, in addition to the occupation of Crimea, which is to all intents and purposes a fait accompli already, and it will be then legitimized from Russian point of view by the referendum held under in the presence of Russian soldiers, cannot be accepted by the West. So these are the facts. But there is also if there isn't a credible counter force, then there's a real danger of that military force being used in the rest of Ukraine. And the Ukrainian forces will have great difficulty to resist that. And that's where the sanctions have come in. And sanctions work as a deterrent. So I think other than, let's say, some symbolic use of the existing sanction possibilities, like the Magnitsky act, which would be a symbolic kind of thing, it should be kept in reserve. And I think it could be. It is a very valid and strong deterrent. However, you have to reflect a little bit of what kind of sanctions, because the talk of having sanctions on Russian assets outside Europe would be what I would describe technically as stupid sanctions as opposed to smart sanctions, because it's the exact opposite of what is needed. Because the weakness of the Russian economy is that there is an ongoing Flight of capital. The oligarchs have no confidence in the Russian economy because there is no rule of law and therefore they send their profits and their children abroad and that's including the drain. I think there must be a few of them here among you and welcome. The smart sanction in this case is in discouraging foreign direct investment. Because if you look at the balance, the flight capital is offset by foreign direct investment. But if you allow the flight capital to continue and it's bound to actually rise and you discourage foreign direct investment, then Russia, which is already a very weak economy, is pushed into a, a recession, a depression, and that is in the longer run a very serious threat to Putin's regime. And I think it's strong enough that it should prevent Russia from overstepping and using military force in the rest of Ukraine.
- [37:14]
C
Whereas if you start confiscating their money abroad, it just encourages them to bring it back to Russia, which is exactly.
- [37:22]
D
It means they can't push and they.
- [37:24]
C
Certainly can't take, won't take any more money out of Russia. Yeah, yeah, yeah. Just a final question on Ukraine and then actually I'd like to bring Mary into it. So we're talking about the potential of some kind of hoping for some kind of negotiated solution, but which would ultimately recognize that the occupation of Crimea is not going to be reversed. Would that be possible to sell to the Ukrainian public, which has become even more, as a result of the events of the last two weeks, enthused and committed to the idea of having a genuine nation state that is completely independent of Russia, that is moving towards Europe. And you, through your foundations have been very closely involved with a lot of the prominent people in Ukraine. Do you feel that kind of negotiated solution would be acceptable to the Ukrainian public?
- [38:28]
D
Yeah, but I think it needs to be reinforced. And this is where I would put the emphasis by what I would consider, let's say a modern day equivalent of the Marshall Plan. Because for the Ukrainian economy to show real improvement and to deal with the deficiencies of the Ukrainian, the corruption, etc. You need outside help. I'm very optimistic about this new Ukraine. I think it's. Something quite unique has happened in Maidan where the sort of the identity of the European identity of Ukraine was established and Ukraine is today more united than it has been since it became independent. It was really divided between east and West. The west was very attached to Europe and the east much more attached to Russia. Also being Russian speaking, my native tongue and so on, and it's more united now than it Was and more wants to be part of Europe. And Europe has to respond by opening up its markets and providing technical assistance to managerial assistance, if you like, to upgrade the economy and make it function properly.
- [40:43]
C
Now, that should happen. And that brings us back to the beginning of our discussion. And then I'd love to hear Mary's comments. It should happen. Do you think it's going to happen? Do you think Europe, the European Union, in its present conjunction, is able and willing to respond in that way?
- [41:04]
D
Well, first, speaking about Ukraine, I think Ukraine is not only ready but is eager to do this. And the fact that the Orange Revolution failed, there is now a determination not to let this one fail. So when you look at the transitional government, it has really brought in the best elements from Ukrainian society. So Ukraine is kind of. I wouldn't say reborn, I would say born in this resistance which has been successful. And it's really quite unique where you had civilians effectively sacrificing their lives, attacking policemen, firing live bullets, and people actually did die and get wounded. And nevertheless, and this is where, almost unique, they succeeded and the police ran away. And that was the. So it's. Let's say it contradicts rational expectations. It certainly contradicts my expectations. So I.
- [42:41]
C
Well, Mary, this is a good opportunity to bring you in as. As a historian of these kind of events. What's your reaction to the conversation we've had so far?
- [42:51]
B
Well, I'm very cheered up, actually.
- [42:54]
C
Yes, so am I. I'm surprised, too.
- [42:57]
B
I think that actually George has been much more optimistic than he is in the book. I felt quite depressed after reading the book. And one of the things.
- [43:09]
D
Well, I was surprised by what has happened. I did not expect it in the book.
- [43:15]
B
No, exactly. And I couldn't agree with you more about Ukraine, which is, you know, seeing it on television. People are talking about human rights and corruption. They're not talking about west versus East. And you are seeing something a bit similar, actually, in Bosnia, which is quite interesting. What, in Bosnia?
- [43:35]
D
Yeah.
- [43:36]
B
But what I wanted to ask you is along these lines. I mean, what struck me was at one point in the book, you say the Maastricht Treaty was a deal between Mitterrand and co. Co wanted reunification and Mitterrand wanted Europe. I think another way of seeing it was that it was a deal between what you call market fundamentalism and passionate Europeanism, in the sense that Delors and Thatcher, perhaps that Delors represented a whole new wave of Europeanism on the backs of the end of the Cold War, rather like there'd been an earlier wave after the Second World War. And what sort of comes out of your book is now not a deal exactly, but the coming together of market fundamentalism and Euroscepticism. And that seems to be what's happening so dangerous about the current situation. So I suppose my question to you is how do we break through that? You know, it seems so deeply held in Germany, these ideas that austerity is the only way to bring back growth so deeply held in this country.
- [44:50]
D
Mary, I have to doubt or disagree with your premise of the similarity. I think it's actually fundamentally different because Germany Cole wanted to reunify Germany and the primary goal was, you might call it a nationalist goal of reunification, but it was really far sighted in recognizing that Germany could be reunified only in the context of a more unified Europe. That's where he had his differences in Margaret Thatcher, if you recall, who was very doubtful about all of this and very much opposed to it to German reunification. And on the French side, the political elite recognized that they had to be closely tied to Germany for to remain important because their chances of, let's say, expanding their influence towards the south didn't compare to the chances that Germany had in expanding towards the east. So Mitterrahm wanted to tie Germany and France together and the price they demanded from the Germans was the euro. And Germany was willing to sacrifice the Deutsche mark, one of its pride and joy, for the sake of reunification. And Germany was really the motor of European integration which was making was advancing leaps and bounds at that time under the law, but fueled by Germany because it was Germany that was always willing to put in a little bit more and take out a little bit less to make every bargain. And you might recall Margaret Thatcher holding out for. Financial concession and Germany paid it. So that's what made this, the integration move forward. And there's been a radical shift in German attitudes after unification has been accomplished. There was a period of digestion lasting between the introduction of the euro and until. Until the financial crisis where they had to sort of the period of digestion. But then Germany was left with considerable financial burden because of the reunification at the rate of 1 Eastern Mark to the western mark cost them a lot of money and they had to then tighten their belt and so on. So when the next step would have had to be taken, because everybody knew that the euro was an incomplete currency. It had a common central bank but no common budget, no common fiscal policy. But everybody who knew that also had reason to hope that when the time comes, Europe will take the next step will be willing to take the next step. But when the time came, which came exactly after the collapse of Lehman Brothers, Germany in particular was not willing to take that step. They did not want to take on additional burdens, additional liabilities. And when the finance ministers issued. Their sort of stated that no other financial institution will be allowed to go bankrupt, which reassured the market. A week later, Chancellor Merkel said, yes, but each country has to do it on its own and not Europe or the eurozone as a group. And that was the first step in the process of disintegration which has now gathered momentum. And if Britain were to leave the euro, that would be a major additional step in disintegration. So we are now in a process of disintegration. And I think that's where a European Marshall Plan for Ukraine could reverse that trend. That would be another step towards cooperation, European cooperation and solidarity and all the things that Europe was supposed to stand for, giving the Ukrainian a hands up, which they a leg up rather in a situation where they want to move towards Europe. But they do need that helping hand.
- [52:05]
B
Yeah, well, I do fundamentally agree with you and I see that as the problem. But it seems to me that for the last 20 years, since the end of the Cold War and since Maastricht, Europe in many people's eyes has been associated with a single market rather than with the ideal of coming together.
- [52:27]
D
Oh, you're right there. Yes.
- [52:29]
B
And that was really what I was referring to and saying is Ukraine going to be enough to overcome what looks like a wave of Euroscepticism in this country, but in many other countries? And can Germany. Is it too late for Germany to reverse that disintegrative trip?
- [52:51]
D
No, I think as I say, Ukraine is the opportunity for Germany to take the lead in that direction. And in the case of Britain, I think it's also decision time. It's not. Britain should not be arguing whether to leave or not to leave, but should re engage in a European Union which is in a mess and it does need the engagement of all the parties. And I think it is also. In not only Britain's interest, but European Union's interest that Britain should remain party to it. But for that there has to be some change of attitude in Britain as well. So you need a change of heart both in Germany and in Britain.
- [54:05]
B
And do you think we're in a kind of vicious circle where politicians really only think about domestic politics and don't think about what's good for Europe and how can we overcome that? And that may be true of political parties and movements as well.
- [54:23]
D
Yeah, I mean, I think, look, the idea of Britain leaving Europe. Europe would be a terrible mistake for Britain. But I think I can leave it to the British business community and particularly to the multinationals that have established themselves in Britain as an entry point into the Common Market to explain to the British public what they have to lose if they leave Europe, namely jobs. And I think that should be enough.
- [55:15]
B
But including in this university, we benefit from research grants.
- [55:22]
D
Well, that's it.
- [55:27]
B
Now I'm longing to talk more, but I think we should open the floor to questions. So I'm looking around for people who want to ask a question. I can see Edward Mortimer. I think you do, and I think somebody will come and give it to you.
- [55:53]
C
I would just like to ask George Soros whether he doesn't feel that the persuasive argument that he made for accepting the Russian fait accompli in the Crimea is uncomfortably similar to arguments that were made for conceding Sudetenland to Germany in the 1930s.
- [56:12]
D
Yes, there is a superficial similarity, but Sudetenland was the first and there should not be in this case any further concession. I don't think that. Denying in the end the right of the Crimeans to be part of Russia is a sustainable position, even though there is the Budapest, Whatever it is, protocol. I mean, Crimea is majority Russian, 60%, you've got 12% Crimean Tatars and the rest is Ukrainian and others. So majority Russian. So it's not an integral part of. Ukraine. So I think there is a superficial similarity in sort of giving in to. Expansionary power. But I think, and more than think, I'm convinced that here Putin is acting in self defense. Putin does have or did have the ambition of reestablishing the Russian empire as a rival of the European Union. And there were a lot of critical voices and there are in Russia that oppose that policy on patriotic grounds. Namely, they argue that this is not in Russia's best interest. But nevertheless, because Putin did have that ambition. But I don't think that Putin has the slightest idea of conquering Europe the way Hitler conquered Europe. So that's where a slight difference between Hitler and Putin.
- [59:22]
B
Okay. I think what I'm going to to do this time is to take three at a time.
- [59:28]
D
I don't like that.
- [59:29]
B
Oh, you don't like that?
- [59:30]
D
No, because I forget. I just thought, I thought we would.
- [59:35]
B
Get more people in, but in that case I won't do that. And I will take this lady here at the front. I always have A principle of taking women first.
- [59:46]
E
I am Dora Puager and I'm president of the Hungarian Society at the ls. So I would like to ask you what you think about long term prospects of Hungary with respect to economic growth. Thank you.
- [59:58]
D
Well, I am sort of reluctant here. I will exercise a little bit of self censorship, frankly, because I have a. Hostage in Hungary in the form of the Central European University. So allow me not to answer that question.
- [60:41]
B
I'm going to take this lady down here.
- [60:48]
E
Good afternoon, Mr. Soros, my name is Denise Becerra. I'm actually coming on behalf of Seman Economica, it's a business magazine in Peru. I wanted to ask you, you mentioned at the beginning of your talk about a private sector solution for the Euro crisis, and you know, I've read a lot about what you have written. Do you think this is a great opportunity for Latin American capitals? And particularly, could you elaborate a little bit more about this private sector solution that you mentioned at the beginning?
- [61:24]
D
Sorry, how does it relate to Latin.
- [61:27]
B
America, the private sector solution?
- [61:33]
E
Yes, you mentioned something about bonds and you mentioned about hedge funds investing in order to help the Euro crisis diminished and in a way solve it. Could you elaborate a little bit more about that?
- [61:53]
D
Well, I was talking about the participation of the private sector in solving the problem of the small and medium enterprises. And there I think that is, that's where I was referring to the private sector. And actually in the Marshall Plan. That's how the Marshall Plan worked in Europe. I don't know what, what would be that relevant? What would that make it relevant to Latin America? I'm sorry, I just don't see it. Maybe there is, but I don't know.
- [62:44]
B
Anthony Barnett.
- [62:46]
D
Maybe I could just say one thing about Hungary. I think it would be very healthy if the Hungarians and other Europeans living in England were to register to vote in the European elections in England instead of voting in Hungary. Foreigners have that choice and their vote could play a much more constructive role in Europe if they actually exercised it in England, because there are 2.7 million Europeans living in England and if a significant part of them voted in England, it would actually outweigh ukip and the.
- [64:11]
B
Whole.
- [64:13]
D
Voting in the European Union, in the European parliamentary elections would be transformed. And I think that the attitude of the Conservative Party would be changed and there's a real danger now of anti European forces becoming a very major. Element in the European Parliament. And I think a vote in England would make a big difference. So I would encourage Hungarians and others to vote in England.
- [65:03]
B
I think that's a fantastic idea. And maybe the Hungarian society can start a registration drive.
- [65:17]
D
Thank you. Anthony Barnett from Open Democracy. Thank you. Very stimulating discussion. I think it was about 18 months ago, George, that you, you made, you put the idea forward that Germany, Germany should leave the euro, which was a very. I thought it was a very surprising and a very creative idea. I take it from what you're now saying that you don't think it will, but do you still. Have you now changed your mind? Do you think it shouldn't? And do you think therefore that Germany is really now committed to a course of assisting the debtor countries? Or are you just hoping that. I did argue and I think theoretically it could still be a quick, much quicker adjustment and if actually the eurozone broke up into two and you would have a northern euro and a southern euro and the southern euro would be the successor currency of the euro, so you would call the northern euro not northern euro, but the northern mark, and then all the debt is designated in euros and the euro would fall, the mark would go through the roof and all the adjustment would then have to be borne by the creditor countries, led by Germany. And the debtor countries would suddenly become competitive. Their. They could easily take the burden of servicing the debt and they would start growing and the problems of the euro would be fixed in one step. That still remains an option, but it's a very difficult one and a risky one and very, you know, it's very, it would be very complicated to introduce it because it would have to be introduced over a weekend and unexpectedly and who is going to prepare it without it leaking when it's a pretty complicated situation. So it's more of a theoretical exercise and it's to encourage Germany to recognize that that would be the alternate. That would be a positive alternative. And I hope, and it still remains only a hope, that Germany will now accept its dominant position and live up to the responsibilities and the liabilities that a hegemonic position carries with it. But it's still only a hope.
- [69:06]
B
Yes, a wonderful theme in the book is liquid leave or leave, leave or lead. So I'll take the gentleman over there.
- [69:22]
D
Thank you. My name is John Evans, I'm an ancient alumni of the school and I was taught by some of the greats of international relations a long time ago. If Germany is able and willing to take on its responsibility, can we be persuaded that the UK Foreign Office will also drop its determination that it should not be in a position to allow any one European state to dominate the European mainland, which it has held Since, I believe 1815 in the way that it's managed its relations with Europe.
- [70:00]
C
The English tradition policy of dividing, divide.
- [70:03]
D
And rule, Europe never be united. Well, actually, another positive aspect of the splitting up of the Euro would be that it would give Britain renewed chance to exercise its historic role as the arbiter, that one side's with one side and at other times with the other. So actually it has considerable theoretical attractions that solution, but the practicalities are against it, and mainly the difficulty of actually arranging an orderly breakup with all the complications and plan it out in advance and then drop it one weekend on an unsuspecting public, that's practically technically impossible. But the attraction, that's part of the attraction, the theoretical attraction of that solution.
- [71:36]
B
Okay, the gentleman here. Oh, and there's someone waving right up at the top. I'll take you next. I'm sorry, I've been very bad at looking up. Thank you.
- [71:50]
D
My name is David, I'm a recent graduate. My question will be around. A question.
- [71:56]
B
If an inflancing institution aggressively shorted government bonds within the European area, in fact.
- [72:02]
D
Incredibly shorted multiple government bonds in the European area, could this lead to yields going to the point that they know.
- [72:09]
B
That government couldn't support this, the interest.
- [72:12]
D
Rates would be too difficult and they would be forced to leave the European area in a similar circumstance that by aggressively shorting the pound, the British government was forced to leave the European exchange rate. I have to ask you to repeat it because I'm hearing this.
- [72:26]
C
What he's saying is, can you imagine a situation where a financial institution or group institutions shorted the bonds of a European country so aggressively that that country had to leave the euro in the same way as happened to the pound in 19? That's exactly what happened.
- [72:51]
D
Yes, I mean, that's what was threatening. But I think now with the stabilization of the situation, it's not currently in the cards, but it could actually under certain circumstances recur in the future. So it's. You see, this is something that is still not recognized, this structural flaw in the euro, which is that by transferring the right to print money, the member countries have effectively or borrowed in a foreign currency. And when you have debts in a foreign currency, you may be forced into default. If you borrow in your own currency, the possibility of default is practically eliminated because you can always print money and pay the interest and pay back the debt. So as long as you borrow in your own currency, there is no risk of default. But if you borrow in a foreign currency, then you run the risk of Default. And this fact was not recognized either by the markets or by the authorities. So the Maastricht Treaty, they declared government bonds to be riskless. And the financial authorities allowed commercial banks to own government bonds without reserving any capital. And the European Central bank was willing to accept government bonds at par at the discount window. And that's what encouraged the commercial banks to buy the, the government bonds of the weakest countries, the weaker countries, which paid some, a few extra basis points of interest because they were weak. And so the interest rates of the various countries converged and that actually led the economic performance to diverge. So that's the history of how the euro crisis developed. And the irony is that effectively the introduction of the Euro put heavily indebted countries into the position of a third world country that's borrowed in a foreign currency. But no third world country could, could have borrowed, let's say, 200% of his GDP in a foreign currency. The maximum he could have borrowed would have been maybe 20, 30%, because no bank would lend you at reasonable rates more than that. So this is the trap that the Eurozone fell into. And that's a fact that even today is not really understood. But that's the structural flaw of the euro, which could have been corrected when the problem arose if at that time all the debt had been converted into Eurobonds.
- [78:11]
B
Okay, I'm going to take the person who was waving the torch at the top.
- [78:18]
D
Thank you. Thank you very much. My name is, my name is Jari Krivoy. I'm editor of Belarus Digest and a former recipient of one of scholarships which were given to Belarusian nationals before your foundation was closed down in Belarus. My question relates to your experience in Georgia, as I understand you were very much involved in reforms there after the revolution of Rhodes. Have you learned any lessons which could be useful for Ukraine today or for any other countries in the region? Thank you. Very good question. And the answer is yes. Actually, Georgia has a lot to offer to Ukraine because Shakashvili was very successful in eliminating, in making corruption a state monopoly and eliminating petty corruption and as I say, concentrating all the corruption in his own hands. And the result is that he successfully eliminated large areas of corruption that the public suffered from. The first thing he did was to stop the police from holding up traffic and extorting money from motorists. But every other kind of petting, corruption that are involved in the issuing of licenses, in the fire inspections and so on were really quite successfully reduced, eliminated. And a lot of it was done by introducing e governance that is to say, using electronic. The Internet for issuing a lot of licenses, which then eliminated the delays and so on. And those techniques which are actually functioning today in Georgia and which are particularly well developed in Estonia. So a combination of Estonian technical expertise in E governance, because Estonia happens to be the most advanced country in the world in E governance. Let's see all the. The taxes are paid through the Internet and so on. And the Georgian experience of eliminating petty corruption could make a tremendous difference in Ukraine and really reinforce the desire for change.
- [81:53]
B
That's really interesting. The lady just here.
- [82:01]
E
Thank you.
- [82:02]
D
Hello, George.
- [82:02]
E
Good to see you.
- [82:05]
B
Looking at the situation in Ukraine, who.
- [82:09]
E
Do you think will take the leadership.
- [82:11]
D
Role there going forward? The. This interim government that has been formed is, I would say, the best group of people you could find in Ukraine. And exactly. Because the Orange Revolution failed, they are determined to do better this time. So I think that the Ukrainians will do what is necessary on the, let's say, the legal front, introducing the right legislation and so on. Where they will need help is in the implementation because they don't have the management skills in particular. And so that's where help from the outside is needed there and in opening up markets. And then I think also financial support for investment in Ukraine, which would make it possible for European companies to set up subsidiaries in Ukraine, could really make a difference. And in fact, that's what's needed to build on the momentum that there is at the moment for reform.
- [84:03]
B
I think we've got. Okay, I'll let one more person. Just you there.
- [84:13]
E
Thank you very much. I thought I'll never get the chance. I am possibly the first non European to question Mr. Soros. Oh, all right. Forgive me for that. All right, Asian. Well, Mr. Soros, I would want to ask you something unconventional. I'm sure everyone is very intrigued to know more about Europe from you. However, I would like your view in the form of an advice for us students sitting here knowing a bit about you and your experience. What I would like to learn from you is the fact that how did you develop your political equity? And what would you want us students to be mindful of while embarking on our own journeys in life throughout and play our own key roles as you have done your duty in the European context. Thank you very much. And was it your experience. Sorry, sorry. Was it your experience which led you to this? I mean, having seen through the realities of life at a young age, or was it your theoretical and empirical research which led you to this path? Thank you very much.
- [85:42]
D
Well, it's very Clearly, I think, practical life experience, which then led to my developing the conceptual framework, which is also actually summed up reasonably well, I think, in the appendix of the book. But I think it's is really very much, the philosophy is very much a consequence of the experience of living in, growing up in Hungary and experiencing Nazi occupation and then Soviet occupation. And it really makes you very much aware how important it is what kind of political system prevails. And particularly sort of the idea of far from equilibrium conditions comes from my personal experience of, of living through those regimes.
- [87:09]
B
Well, that is a wonderful note, I think, and very important note to take away and to end on. I just wanted to make one plea to everybody, which is that one of George's many initiatives, there's so much we could have continued to talk about. We didn't talk about China, for instance, and we'll have to have him back to have many other discussions. But one of the things he's supporting is action to end the war in Syria. And there will be a vigil this evening between 6 and 7 in Trafalgar Square organized by Crisis Action and they've produced a video which you can look at on with syria.com. so if nobody has anything else to do this afternoon, pop along to Trafalgar Square and support this initiative.
- [88:02]
D
I wholeheartedly, I knew George would.
- [88:06]
B
So all that remains for me to say. This was a fascinating conversation and I wish it could go on and on and on. I see a Chinese person wanting to ask a question, but I think we've got to the very end, unfortunately. So many, many thanks and we hope to see you again again very soon.