Echoing more and more observers and market participants, famed hedge fund manager George Soros cautions that the financial crisis is not over and sustained global growth remains fragile.
In recent commentary in the Financial Times, as well a speech he delivered in Berlin to celebrate the release of his latest book, Soros says that "far from abating, the euro crisis has recently taken a turn for the worse."
The European Central Bank relieved an "incipient" credit crunch through its longer-term refinancing operations. The resulting rally in financial markets hid an underlying deterioration; but that is unlikely to last much longer, according to Soros.
"The fundamental problems have not been resolved," he said. "Indeed, the gap between creditor and debtor countries continues to widen. The crisis has entered what may be a less volatile but more lethal phase."
The only way to "escape the trap" is to recognize that current policies are counterproductive and change course. He acknowledges he cannot propose a cut-and-dried plan, only some guidelines.
"First, the rules governing the euro zone have failed and need to be radically revised. Defending a status quo that is unworkable only makes matters worse," he writes.
Second, the current situation is highly anomalous, and exceptional measures are needed to restore normalcy. Finally, he says new rules must allow for financial markets' inherent instability.
