DAVOS 2011: Debt crisis could tear up Europe, says Soros

By Hugo Duncan
Last updated at 10:10 PM on 26th January 2011
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The debt crisis in the eurozone is far from over and could tear the Continent apart, the World Economic Forum heard yesterday.

Billionaire investor George Soros said Europe could split in two as powerful economies such as Germany and France leave the weaker periphery behind.

'Europe could potentially fall apart because of this two-speed Europe,' he told reporters in the Swiss ski resort of Davos.


Stark warning: George Soros believes that Europe could easily split in two

The stark warning came just hours after American economist Nouriel Roubini said the crisis threatens to spread from Greece and Ireland to Portugal, Belgium and Spain.

Roubini, who is dubbed Dr Doom, said this would be too much for the €750bn rescue fund set up by the International Monetary Fund and the European Union to handle.

'Spain is too big to fail, but it is also too big to save,' he said.

It came as pressure mounted on European leaders gathering in Davos to thrash out a solution to the crisis. French president Nicolas Sarkozy addresses the conference today and German chancellor Angela Merkel tomorrow.

Soros - dubbed 'the man who broke the Bank of England' after he made $1bn betting against sterling on Black Wednesday in 1992 - said the euro was 'flawed from inception because it only had a common central bank but no common treasury'.

He said: 'You are going to have a two-speed Europe. That is going to be politically very destructive.'

He said that although the euro is 'clearly here to stay' because of political will in France and Germany, it is in the process of 'changing its form'. Soros called for a Europe-wide solution to stimulate growth in weak countries in the periphery 'that have been left behind'.

Higher taxes on banks could be the solution, he said.

'I think there is a big push now for a financial transaction tax and that I think could be the basis for some action and it could also be used for fighting climate change and so on,' said Soros.

Pessimism over the euro was highlighted in a Bloomberg survey in Davos found that most global investors think at least one nation will leave the euro within five years.

Despite the relative calm in the markets in recent weeks, 59pc of respondents said one or more of the 17 euro nations will quit by 2016.

Roubini said: 'The mood in the market is slightly better but the fundamental problems are still unsolved in the eurozone.

'What's happening in the eurozone is certainly one of the biggest risks to the global economy.'

He said the lack of growth, and in some cases outright contraction, in peripheral countries risked fuelling a 'social backlash' against austerity measures because there is 'no light at the end of the tunnel'.

Lars Olofsson, chief executive of Europe's biggest retailer Carrefour, said his main concern is getting Europe growing again.

'How do we help Europe in the short and medium term?' he said. 'Because without growth, I'm going to be pretty pessimistic.'

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