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Eurozone needs stimulus: Soros

01-26-2012 07:51 BJT Special Report:2012 Annual Meeting of World Economic Forum |

DAVOS, Switzerland, Jan. 25 (Xinhua) -- Fiscal consolidation and austerity measures are not enough to solve the current debt crisis, the eurozone may need stimulus measures, U.S. billionaire investor George Soros said here Wednesday.

He gave the comment in a lunch briefing during the World Economic Forum meeting.

Soros attributed the current crisis in the eurozone to flaws in design of euro. "Maastricht Treaty established a monetary union without a political union. The euro boasted a common central bank but it lacked a common treasury," Said Soros.

He further criticized euro as "building on an outdated theory of financial markets" i.e. designers of euro believed only the public sector produces imbalances because market excesses are corrected by the invisible hand.

What's more, Soros pointed out the when the euro was introduced, the European Central Bank (ECB) accepted all government bonds on equal term, which gave banks an incentive to "gorge themselves on the bonds of the weaker countires" to earn a few extra basis points on higher yielding rates.

This, in turn, caused economic performance to diverge and made Germany more competitive and bubbles in peripheral nations to grow.

He also criticized slow reactions of the eurozone and strict conditions posed on Greece. He also described ECB's LTRO as buying time, but not a fundamental solution.

Soros described fiscal compact reached in last European Union summit as a correct step but far from enough. "The eurozone still needs a stimulus," Soros said.

Editor:Zhang Rui |Source: Xinhua

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