The shadowy Soros has descended from his magic mountain of mountain in Zarathustra-like fashion to impart words of economic wisdom by commenting on an internet article. Soros responded to a German economist’s critiques of Soros’s economic solution for Germany and the Eurozone. In examining this issue, we find that both Soros and his opponent, Hans-Werner Sinn, miss the true solution to Germany and the Eurozone’s economic troubles.
The roots of this debate lie a week before Sinn’s article, when Soros published an article detailing his views on the Euro crisis. In the article, Soros focuses on what he sees as the Eurozone’s basic problem, “By creating an independent central bank, member countries have become indebted in a currency that they do not control.” His solution? “Eurobonds.” Soros explains that his “Eurobond” solution entails allowing member nations’ government to “convert” to Eurobonds their debt (even all of it). Soros proclaims Eurobonds’ trappings: lower debt, better economies, and perhaps a surplus. Finally, Soros gives the German government the choice to accept Eurobonds or leave the Eurozone.
But far more interesting, and revealing, is the other, longer Soros article on the Eurozone crisis. In this more detailed article, Soros passes over the Eurozone crisis’s cause, saying that it’s very complicated and its complexity makes the cause hard to understand. Oddly, the solution possesses much more simplicity and ease of understanding, according to Soros. For Soros, there exist two major points. The first is Germany, and the German government’s responsibility. Soros argues that Germany’s position as a leader in Eurozone and its “bad” policies caused the Eurozone’s ills. Picking up where the first article started, Soros’s case for Eurobonds appears clearer, though not logical. Still, Soros and his Eurobonds appear akin to a charlatan and his snake oil.
The German economist Hans-Werner Sinn wrote a reply to Soros’s Eurobond scheme. In it, Sinn believes that if the Eurozone implemented the Soros system, the Germans would leave the Eurozone. At a very basic, legal level, Sinn writes that Soros’s plan possesses “no legal basis for his demand. Article 125 of the Treaty on the Functioning of the European Union expressly forbids the mutualization of debt.” Additionally, Sinn points out what he sees as the Eurozone’s problem. Rather than blaming the Germans, Sinn sees the Eurozone’s problem lying with “its southern members’ loss of competitiveness.” Sinn argues that the southern Eurozone nations must make their good prices cheaper and the northern nations must accept inflation. In regards to Germany, Sinn also argues that Germany should not leave the Eurozone, as it would bring back the old tensions between France and Germany. Sinn’s ultimate solution, then, is to let the countries default on their debts.
Finally, Soros responded to Sinn. In his longish comment, Soros first notes that Sinn of “deliberately distorted and obfuscated my argument.” Then, in a single sentence Soros sums up his plan “I was arguing that the current state of integration within the eurozone is inadequate: the euro will work only if the bulk of the national debts are financed by Eurobonds and the banking system is regulated by institutions that create a level playing field within the eurozone.” Soros goes on to write that it doesn’t matter if Germany stays or leaves, considering they will use Eurobonds if they stay. He cites Japan’s economic conditions as an example of Germany’s disastrous plan. In the end, Soros affirms his faith in the European Union, and his anger at Germany, as he sees it, destroying that union. Most disturbingly, though, Soros affirms, “Europe would benefit from a benevolent hegemonic power. So would Germany.”
What the conservative must realize within this debate, which frames the overall Eurozone debate well, is that both sides are utterly wrong. As is often the case in economic arguments of this sort, there exist the obviously wrong (Soros) and the less wrong (Sinn). Both men fail in realizing what the fundamental problem is with the Eurozone and European Union—such a governmental and economic union exists.
Writing for the Mises Institute, Philipp Bagus precisely pointed out the source of the European Union’s problems. Rather than blaming Germany or Southern Europe, Bagus examines the European Union and finds that the meddling from the European Union and governments bear responsibility for the crisis. Very simply, government-controlled banks expanding credit and the money supply created the Eurozone’s crisis.
If this, then, is the root of the Eurozone’s problem, what is the solution for the Eurozone? Does it lie in forcing Germany to join or leave, promptly following the pied-piper Soros, luring the European Union into a dark cave with promises of Eurobonds and prosperity? Clearly not, for this “solution” merely perpetuates the insanity that led the European Union into ruin. But what about Rinn? I’ll admit, his advice has a common-sense quality to it, but it does not stand up under the solid economic principles put forth by such intellectual giants as Ludwig von Mises and his fellow Austrian School thinkers.
While Sinn likely has good intentions, unlike Soros, in his economic outlook, it still does not provide a viable solution. Again, Sinn’s advocating for those in the European Union to take responsibility it seemingly sensible. That is not to say that the solution is one of irresponsibility, rather that the entire Sinn versus Soros argument is framed incorrectly.
Let us use another prominent international issue as an example. The conflict in Syria has been bloody and brought many in the United States and elsewhere to call for action. But many disagree over handling the conflict. This handling of the conflict correlates directly to the European Union debate. Some advocate that the United States and her allies enforce a “no-fly zone” over Syria and use airpower to aid the jihadist-backed Syrian rebels. Alternatively, some call for direct ground intervention in the conflict. The conservative should realize that both these options are fundamentally flawed and terrible ideas. The entire debate encompasses something contrary to true conservative and libertarian ideas. This is precisely the debate involving the European Union.
World War II left an indelible mark on Europe. The horrors, destruction, and millions killed during that time cannot be forgotten. But some European nations, in their fear and ignorance did not look to the free market and free trade as a means to prevent another war. Rather, these nations thought bigger and more intrusive government would prevent such a war. It is time for the Europeans in their statist union to realize the truth. Only completely free markets will bring prosperity and peace to Europe. They cannot put their faith in worthless currency, bureaucracies, and government, but they must trust themselves as free individuals—the market’s foundation.