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Last Updated : Jan 27, 2015 08:32 PM IST | Source: Moneycontrol.com

Eurozone QE may create bubbles, worsen rich-poor gap: Soros

The timing of the World Economic Forum summit this year at Davos was extraordinary. The European Central Bank stepped up with a quantitative easing (QE) programme that the markets appeared to like but one vocal critic continued to remain worried.


The timing of the World Economic Forum summit this year at Davos was extraordinary. The European Central Bank stepped up with a quantitative easing (QE) programme that the markets appeared to like but one vocal critic continued to remain worried.


In a roundtable which also comprised of central bankers and policymakers such as Ignazio Visco (Bank of Italy governor), Wolfgang Schauble (German finance minister), George Osborne (UK chancellor of exchequer) and Luis Guindos Jurado (Spain economy minister), billionaire investor George Soros talked about what QE meant for Europe going forward.


Excerpts from the conversation.

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Q: You have been a vocal critic of what you perceive to be Germany's reluctance to allow fiscal and monetary policy to assist Europe at this difficult time of crisis. Did Germany just get outmaneuvered or does this package still fall short of what we need in Europe?


Soros: I remain a critic because the balance between fiscal policy and monetary policy would do the job better. It would not create other imbalances than reliance only on monetary policy can create as it works in depressing the value of the euro, which of course helps exports and of course it will create possibility of an asset bubble which can have other negative effects.


My main concern is that it will make the divergence between rich and poor bigger than it already is because it will benefit the owners of assets and wages will remain under pressure through competition and unemployment. So, this will reinforce a major concern, which is the difference between rich and poor. It will have political consequences.


Q: We have seen dramatic movements on the single currency. The euro has dropped below 1.12 even as we speak here. That is the first time since 2003. In spite of your concerns the policy is having its expected effect, isn’t it? It is starting to make the markets expectations change.

Soros: Definitively the sheer size of the massive injection and the duration and so on will have undoubtedly an effect. It will also have a lot of effect on international currency markets. If I were selective in the business I could see some fairly substantial moves coming. Financially stability can also create dislocations and turmoil from time to time. Those are the negative effects and all this would be better if you had a better balance between fiscal policy and monetary policy.

First Published on Jan 27, 2015 08:31 pm
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