Economic Prediction

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George Soros Reveals Lack of Preparedness in EU Crisis

In 1783, the United States started to develop its new political and economic system. 209 years later, the European Union (EU) developed its own example of the United States. Unfortunately, George Soros 2008 prediction may have revealed that the EU was not as prepared for political-economic crises as the United States was.

“Like Gold Tested in Fire”

In 1917, as Europeans continued a horrible World War fighting inch-by-inch across mud-filled fields in Belgium, they welcomed the American “Dough Boys” to give them much-needed help. While the Europeans had been forced to ration basic consumer goods and were thin, the American soldiers were stocky and well-fed. Hershey’s even used the opportunity to promote its new chocolate candy bar. Europeans started to yearn for the prosperity that America had achieved.

Local and state governments in the United States largely have “balanced budget” requirements. They are not allowed to run high deficits. Only the federal government is permitted to run large deficits to fund wars through United States Treasury bonds.

“European Members Run High Budget Deficits”

A recurring grievance in the European Union has been over budget deficits. Initially, the European Union sought to establish the Maastrict Treaty ceiling of deficits of 3% of GDP. Unfortunately, in 2003, when Germany and France overshot that limit, the European Union headquarters in Belgium allowed them to violate this guideline without any fine, rebuke or penalty.

Naturally, the other member states of the European Union took note. One of the tried-and-true maxims of politics is that if politicians are allowed to “kick the can down the road” by running deficits, they will. In the long run, this can destroy a currency.

With numerous member states running deficits and using the same currency, pricing becomes an issue. The Euro is supposed to represent all of the nations, but each nation continued to follow its own cultural norms. In 2008, this untenable situation collapsed.

“George Soros Supports American Response to Crisis”

In 2008, George Soros responded to the crisis with his book: The New Paradigm for Financial Markets – The Credit Crisis of 2008 and What it Means. While the United States Federal Reserve stepped in immediately to save the banks, the European Central Bank hesitated. It did not allow for the debt to be renegotiated.

America was prepared for crisis, Europe was not.

Barry Eichengreen said “[i]n the euro zone, what is feasible is not desirable, and what is desirable increasingly looks infeasible.” Europe seemed stuck. Each member state had a slightly different problem and it could not develop a policy that made everyone happy. George Soros 2008 prediction was a warning that the global economic crisis will worsen if it is not fixed.