The billionaire investor, notoriously famous amongst forex markets aficionados as “the man who broke the Bank of England”, is out making quite the political statement. After speculating against the British pound in 1992 and forcing the UK out of the European Exchange Rate Mechanism set in place, George Soros is now on the wires warning the EU about the incoming Russian threat.
Mr. Soros is accusing Western powers of greatly underestimating the seriousness of the situation of Ukraine and Russia. In a recent Financial Times interview, he urges for decisive action in response to recent events by designing a joint EU and International Monetary Fund bailout of Ukraine in order to assure stability in the region.
Soros Sends the EU to Ukraine’s Rescue
Well-known for his philanthropy and pro-democratic efforts through his foundation, Mr. Soros published an essay in The New York Review of Books to present his views on what needs to be done on a number of points.
Arguing that the EU has a number of untapped borrowing resources, Soros suggests that the Balance of Payments Assistance facility which was tapped to assist Hungary and Romania, has unused funds of $47.5 billion , while the European Financial Stability Mechanism, which has been the primary tool when bailing out Portugal and Ireland, has about $15.8 billion of unused funds.
While both of the EU tools can only be used to assist member states, they should instead be modified to provide Ukraine with enough funds to prevent a default, Mr. Soros argues. That in turn should put the IMF in a position to raise its lending to Ukraine by $13 billion and to convert the existing Stand-By Agreement into a longer-term Extended Fund Facility program.
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And then there is more, Soros claims that the European Investment Bank could chip in with €10 billion or even more.
“The funds should be used to connect Ukraine to a unified European gas market and to break up Naftogaz, the Ukrainian gas monopoly,” Soros argues. He goes on, mentioning funds from the World Bank and the European Bank for Reconstruction and Development and the 2009 Vienna Initiative for Eastern Europe.
Political Feasibility of the Billionaire’s Plan
We do have a couple of questions for Mr. Soros, as while sounding ambitious, his plan faces a great deal of hurdles.
How will European governments be able to justify these steps to the continent’s taxpayers, when in many countries they have been feeling the pinch of austerity? What about fiscal discipline, why will those funds be spent on Ukraine and not spent on Greece, Portugal, Spain or others?
Is there a limit to the European Union borrowing funds? How will credit risks affect the creditworthiness of the EU member states? How can the EU afford to help others when it can not get its own house in order?
Many of the EU member states already suffer from chronic deficits, including France and Italy in the core. Mr Soros’ plan would sound great if the average debt to GDP ratio across Europe was closer to 50%, but how can anyone talk about borrowing affordability when the European Central Bank is on its way to becoming the lender of last resort for European governments?