Soros on German Austerity Planning

German Chancellor Angela Merkel unveiled austerity plans earlier this month for 80 billion euros ($107 billion) in national budget cuts over the next four years. Chancellor Merkel’s planning proposal prompted this ominous response by George Soros regarding the future of the European Union:

German policy is a danger for Europe; it could destroy the European project… Right now the Germans are dragging their neighbors into deflation, which threatens a long phase of stagnation. And that leads to nationalism, social unrest and xenophobia. Democracy itself could be at risk.

The larger lesson here for the world is that monetary contraction and austerity carry political risks that may be worse than the risks of monetary expansion and inflation. The austerity hawks are real, as are the political risks…

Source: Carrel, P & Brown, S (2010, June 23), Soros Says Germany Could Cause Euro Collapse, Reuters.