The Soros plan to save Europe

The guessing game over the future of the eurozone has intensified as the European Central Bank tries to fulfil its pledge to “do whatever it takes” to resolve a crisis some see as insolvable.

At the centre of all the debate, and the various proposals, is the role of Germany.

One of the best efforts was the Merkel Memorandum in The Economist, a 4000-word essay laying out the various options for a Plan B – at the most extreme it would mean getting rid of Greece and three or four other countries.

While the Economist exercise is mainly one of clever intellectualising, another proposal has had much more impact. Financier Geroge Soros sums up his argument as a choice for Germany: either lead the eurozone ("benevolent hegemon") or quit.

He largely blames Chancellor Angela Merkel’s response to the global financial crisis for the erosion of unity in the eurozone: her demand that each country provide guarantees for its own financial institutions was "the first step in a process of disintegration that is now threatening to destroy the European Union."

He says there have been several occasions over the past three years that the crisis could have been solved relatively easily and inexpensively.

Instead, Germany missed every opportunity to resolve the crisis and the situation deteriorated to the point that the very survival of the euro came into question. Meanwhile, Europe "did only the minimum necessary to avoid a collapse of the financial system."

With a sense of history, Soros says in an updated introduction to his essay that last week's ECB decision to purchase unlimited sovereign bonds was a "game-changing event [that has] committed Germany to the preservation of the euro."

The future is now clearer, he says. “The continued survival of the euro is assured but the future shape of the European Union will be determined by the political decisions the member states will have to take during the next year or so."

Soros chose the New York Review of Books to publish his piece, which was later available at Spiegel Online. He has since spoken to Reuters TV’s Chrystia Freeland about the option of Germany leaving the eurozone and allowing the currency to devalue.

“A Latin euro, where the members formed a fiscal union and would therefore go to introducing euro bonds, would be able to borrow at rates comparable to Japan, the US and the UK. They would rank equally on the macroeconomic basis, if you compare them in terms of total indebtedness and deficit.”

He says Europe couldn’t survive the exit of one of its weaker, southern members but that it could weather the “amicable” departure of Germany.

“If Italy or Spain left, not only the euro but also the common market and the European Union would fall apart. Whereas if Germany left, the common market could hold together.”

But, at bottom, Soros is a pan-European and believes a united continent is not just about deficits and bonds but about maintaining open and free societies committed to human values.

Iran’s skullduggery at sea
The coffers of the Tuvalu Ship Registry are a little lower now that it has decided against reflagging Iran’s oil tanker fleet.

Pressure from the US and Europe, who have imposed sanctions against Iran, has resulted in Tuvalu – the former British colony of the Gilbert & Ellice Islands in the northern Pacific – changing its mind (see Tuvalu takes moolah from the mullahs).

Tanzania has also changed its mind and that leaves Iran looking for other targets so its fleet can escape the sanctions.

Some politicians in the US have urged President Obama to extend the sanctions to any country that provides flags of convenience to the Iranian fleet.

The sanctions seem to be effective – Iran’s oil production has dropped to below three million barrels a day – and its shipping corporation has been added to the US Treasury’s list of banned companies. The sanctions also mean tankers carrying Iranian oil cannot get maritime insurance.

Meanwhile, an NBC report, “Skulduggery at sea,”  reveals Iran is hiding and transhipping millions of barrels of oil at an obscure tax-haven port in the Malaysian part of Borneo.

The real wealth of nations
The complexity of measuring wealth and poverty has become harder in a new United Nations report that calculates value of natural and human capital as well as manufactured assets.

The aim of the Inclusive Wealth Index is to rank countries according to their stock of physical resources, skilled workforce and quality of infrastructure.

This overcomes shortcomings in traditional measures such as GDP, which is based on income rather that the amount of capital that has been built. A comparison with companies would be measuring them solely by earnings rather than looking at the balance sheet.

Unfortunately, only 20 countries were measured and they didn’t include New Zealand.

But based on the methodology, it would rate highly, based on the natural capital capital (forests, fisheries, fossil and mineral resources, and agricultural land). It would rank highly in human and health capital as well but low in manufactured assets.

All countries in the index, which included the leading developed economies as well as the large emerging ones, had showed improvements over the 19-year period surveyed, except South Africa.

Others (Russia, Saudia Arabia and Venezuela) were rapidly depleting their oil but not offsetting it with investment in produced and human capital.

China outpaced India by several factors with spectacular index growth of 2.1% compared with 0.9%, reflecting India’s weak performance on lifting its human capital while its natural capital is diminishing.

The UN maintains the index is a measure of sustainability. In growth terms, China scores highest ahead of Germany and France.

In overall inclusive wealth, the US is double that of Japan, which is nearly three times wealthier than third-placed China.

But Japan is top when inclusive wealth is calculated on an individual basis, followed by the US, Canada, Norway and Australia.