MercoPress. South Atlantic News Agency

Soros predicts Euro crisis could be worse than Lehman Brothers

“Lack of consensus on an authority with enough power to handle the problem” is behind the crisis says Soros

Billionaire George Soros believes that the current crisis of the Euro zone has the ‘potential to be a lot worse than the Lehman Brothers’ in the US due to the lack of consensus in the European Union to create an authority with enough power to handle this problem.

“That is why the problem is so serious. You need a crisis to create the political will for Europe to create such an authority, but there is still no understanding as to what the authority will do,” he said in an interview published by The New York Times.

The billionaire’s statements increased the fear that the debts of countries such as Greece, Spain and Italy could lead to a domino effect of panic spreading the banks of the US and the rest of the world.

According to the newspaper, the US financial institutions are “increasingly wary of making new short-term loans in some cases and are pulling back from doing business with their European counterparts” a similar situation to the one suffered in 2008 with Lehman Brothers that led to a global recession.

Nevertheless, other experts insist that there is still enough liquidity in the markets due to the capital of the central banks, the European companies’ debt is not as high as the ones of the US three years ago.

In a previous interview but with Germany’s Der Spiegel, Soros forecasted that the US is on track for a possible double-dip recession, “but it’s not of the nation’s making”.

“The indebtedness of the U.S. is not all that high, but if a double-dip recession was in doubt a few weeks ago, it is less in doubt now, because financial markets have a very safe way of predicting the future. They cause it” Soros emphasized.

“And the markets have decided that the US is going to see a recession, particularly after the recent downgrade of the US by the rating agency Standard & Poor's“ Soros argued.

The billionaire went on to tell the German publication that the current crisis is still the continuation of the same crisis: in 2008: the financial system collapsed and it had to be put on artificial life support. “The authorities managed to save the system. But the imbalances that caused the crisis have not been removed”.

Soros explained that the method authorities rightly chose three years ago was to substitute the credit of the state for the credit in the financial system that collapsed.

“After the failure of Lehman Brothers, the European financial ministers issued a declaration that no other systemically important financial institutions would be allowed to fail. That was the artificial life support; it was exactly the right decision“, Soros said.

”But then German Chancellor Angela Merkel stated that such support would only be granted by each EU member state individually, and not by the European Union, which undermined the concept of a strong European response to the crisis”.

Soros went on to way that “Merkel statement was the origin of the Euro crisis. It shattered the vision that the EU will protect the Euro in a joint effort”.