Book Review: The Tragedy of the European Union: Disintegration or Revival?

There is no easy fix to EU’s problems. The idea that successful countries would help the others grow seem to work in the opposite way; an anchor to the entire continent. George Soros, through his famed shorting of the pound back in the 90s, seems unlikely to support the idea of a stable EU (and, indeed, has profited from the instability). However, his roots from Hungary still resound strongly within him, and the book “The Tragedy of the European Union” represents a series of interviews with Gregor Peter Schmitz of Der Spiegel in which Soros tries to create a blueprint of an EU solution.

If one would like to see a solution, this book offers none. In fact, over 4 interviews, the readers see how Soros’ views change over time, and how one solution, which could have worked a time, would cause chaos in the system today. This book offers more of an opportunity to explore how EU got to where it is today, and what needs to change now to set the tone for the future.

The book is set as 4 interviews: 3 in the Summer of 2013, and 1 in December 2013. There are distinct themes: History, Tragedy, Markets, and Future. In the appendix, there is a reprint of Soros’ personal philosophy, also known as the Human Uncertainty Principle.

Soros tries to answer 4 questions, representing the cairns of the book, and will drive this blog post:

Does the current EU still live up to the ideals on which it was founded?

Not anymore. And the reason why will be expanded upon by the next question. But the reality is that the EU is broken because of the hyper-nationalistic feelings in the individual countries. However, if the hate would be focused on one country, it would be Germany. The Germans, whose economy has been doing well in comparison to its fellow nations, are seen as the reason for the push in austerity measures. The people will never come to terms with the idea that their country has lost the right to its own destiny. The EU, which was supposed to represent the idea of unprecedented connectivity and cooperation, now looks like chains of each other’s financial obligations. Without the idea of the unified Europe, the EU has failed at its most fundamental task.

What caused the Euro crisis, and what can we learn?

This is where Soros’ financial knowledge shines. When the EU and the ECB were created, the idea is that a central bank would guarantee any government debt 100%. Of course, this meant riskfree interest, which led to lower interest rates. However, this was the key flaw in the Euro: the real danger that individual government debt can default because it is not guaranteed by all its members. Hence, we see the high interest rates in Greece, Spain, and other countries.

Soros’ solution is as simple as it is elegant. Guarantee all the current outstanding government debt now by the ECB and all its members. The idea is that the interest rates would be lower thanks to the guarantee, which would help the failing countries out of recession faster. In addition, it would be unlikely that the guarantee would be exercised; just having it would calm investors. Any new debt would not be guaranteed, so the program would not be abused

Relationship between politics and the market?

This is a complicated idea, and it’s the crux of Soros’ personal philosophy (for another day). Essentially, politics reacts to the market, and the market reacts to politics. There is an idea that the markets are smarter than everyone, or the efficient market hypothesis. The market takes everything into account, and has an accurate view of the world. Politicians, seeing the market, react accordingly. However, speculators attempting to predict the future, see the politician’s actions and react to that. The term for this is something Soros calls “reflexitivity.”

In what direction is the EU heading?

This is never answered sufficiently, which is to be expected. Without a coordinated effort, the EU seems to be a doomed experiment. There are key themes, however, that Soros stresses. In the short term, the UK cannot leave the EU. The UK, he argues provides a buffer for Northern Europe and Southern Europe. In the long term, the countries have to be willing to open their borders not only to each other, but to Eastern Europe as well. This current atmosphere of nationalistic fervor is only hampering EU’s recovery, and goes against the idea of the EU on a basic level.

It’s important for politicians to act on good advice regardless of its source. Soros, who has already proven to be a financial genius, lends his philosophy to politics. His advice, while simplistic, provides a clear roadmap to follow for EU’s recovery. Sadly, it won’t be followed for the same reasons that the EU is trouble: change is not tolerated.

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