Europe according to Soros

24 March 2014

At a recent conference, managers from the Kairos multi-manager team were able to hear one of the most authoritative figures in international finance, George Soros, speak. The crux of his speech related to Europe, which he said remains a debt prison for the periphery countries. Although normalization has recently begun, the divergent trend between countries will stay in place until the disparate costs of financing for companies in the various countries aligns. In any case, an improvement has been seen in the periphery after the dramatic situation until not long ago.

However, according to Soros, from a structural standpoint the risk remains that stagnation could last for many more years, with Germany heading forward and Italy falling back, albeit to a lesser extent than previously.

Add to this the fact that certain countries in the Old World issue debt in a currency that they do not print, thereby remaining victims of great instability, similar to what we saw happen to emerging countries in the eighties and nineties.

Soros then noted that the interruption in the monetary stimulus mechanism that transferred credit to small and medium-size businesses complicates matters further. This mechanism is difficult to fix, since it would require reliance on investors capable of assuming the necessary equity risk to recapitalize banks. Without it, the deflationary trend is destined to continue.