Billionaire investor George Soros has called on Europe to start a fund to buy Italian and Spanish bonds, or risk the demise of the euro.
As European leaders meet again this week at a key summit on the eurozone, Soros said in an interview with Bloomberg that policymakers should create a European Fiscal Authority to purchase sovereign debt in return for Italy and Spain implementing achievable budget cuts.
Funding for the purchases would come from the sale of European treasuries, which would have low yields because they would be backed by each euro member, he said.
Soros warned leaders they risk disaster because Europe is running out of time to show investors it can save the euro.
He said: "There is a disagreement on the fiscal side. Unless that is resolved in the next three days, then I am afraid the summit could turn out to be a fiasco. That could actually be fatal."
German Chancellor Angela Merkel said in a recent speech she opposed "premature" proposals for issuing euro-area bonds, arguing they cannot be sold until there is a full fiscal union for the region, Bloomberg reports.
"Merkel has emerged as a strong leader," Soros said. "Unfortunately, she has been leading Europe in the wrong direction."
"It is very hard to see how Greece can actually meet the conditions that have been set," he said. "The Germans are absolutely determined not to modify those conditions. One has to now calculate on Greece being forced out of the euro."
Under Soros's plan, outlined in a paper sent to EU leaders, bonds sold by the European Fiscal Authority would receive a zero-risk weighting from regulators, allowing the European Central Bank to treat them as the highest-quality collateral.
That would spur demand for banks to buy the securities and ensure that their yields would be less than 1 percent, a more sustainable level than the rates Spain and Italy pay today, he said.
The scheme would also buy the union time to form a true political union that will ultimately lead to the sale of bonds backed by the entire bloc, Soros said.
European treasuries could be sold to the market within three to six months once an agreement is in place, he said.
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