In a lengthy transcription of an interview with Italy’s La Repubblica, billionaire hedge fund manager, philanthropist, and – some might argue – puppet master to a new world order, expounded at length on Europe’s demise, financial market bubbles, and – the focus of this note – Europe’s imminent demise unless they follow his grand plan.
He begins on a rather ominous note:
“We are in a crisis, the worst crisis in my lifetime since the Second World War. I would describe it as a revolutionary moment when the range of possibilities is much greater than in normal times. What is inconceivable in normal times becomes not only possible but actually happens. People are disoriented and scared. They do things that are bad for them and for the world.”
Q) So how do you see the situation in Europe and the United States?
A) I think Europe is very vulnerable, much more so than the United States. The United States is one of the longest-lasting democracies in history. But even in the United States, a confidence trickster like Trump can be elected president and undermine democracy from within.
But in the US you have a great tradition of checks and balances and established rules. And above all you have the Constitution. So I am confident that Trump will turn out to be a transitory phenomenon, hopefully ending in November. But he remains very dangerous, he’s fighting for his life and he will do anything to stay in power, because he has violated the Constitution in many different ways and if he loses the presidency he will be held accountable.
But the European Union is much more vulnerable because it is an incomplete union. And it has many enemies, both inside and outside.
Q) Who are the enemies inside?
A) There are many leaders and movements that are opposed to the values upon which the European Union was founded. In two countries they have actually captured the government, Viktor Orbán in Hungary and Jaroslaw Kaczyński in Poland. It so happens that Poland and Hungary are the largest recipients of the structural fund distributed by the EU. But actually my biggest concern is Italy. A very popular anti-European leader, Matteo Salvini, was gaining ground until he overestimated his success and broke up the government. That was a fatal mistake. His popularity is now declining. But he has actually been replaced by Giorgia Meloni of Fratelli d’Italia, who is even more of an extremist. The current government coalition is extremely weak.
They are only held together to avoid an election in which the anti-European forces would win. And this is a country that used to be the most enthusiastic supporter of Europe. Because the people trusted the EU more than their own governments. But now public opinion research shows that the supporters of Europe are shrinking and the support for remaining a member of the eurozone is diminishing. But Italy is one of the biggest member, it is too important for Europe. I cannot imagine a EU without Italy. The big question is whether the EU will be able to provide enough support to Italy.
Q) The European Union has just approved a €750B recovery fund…
A) That’s true. The EU took a very important positive step forward by committing itself to borrow money from the market on a much larger scale than ever before. But then several states, the so-called Frugal Five – the Netherlands, Austria, Sweden and Denmark and Finland – managed to make the actual agreement less effective. The tragedy is that they are basically pro-European, but they are very selfish. And they are very frugal. And, first, they led to a deal which will prove inadequate. The scale back of plans on climate change and defense policy is particularly disappointing. Secondly, they also want to make sure that the money is well spent. That creates problems for the southern states that were the hardest hit by the virus.
Q) Do you still believe in a European perpetual bond?
A) I haven’t given up on it, but I don’t think there is enough time for it to be accepted. Let me first explain what makes perpetual bonds so attractive and then explore why it is an impractical idea at the present time. As its name suggests the principal amount of a perpetual bond never has to be repaid; only the annual interest payments are due. Assuming an interest rate of 1%, which is quite generous at a time when Germany can sell thirty year bonds at a negative interest rate, a €1 trillion bond would cost €10 billion per year to service. This gives you an amazingly low cost/benefit ratio of 1:100. Moreover, the €1 trillion would be available immediately at a time when it is urgently needed, while the interest has to be paid over time and the longer out you go the smaller its discounted present value becomes. So what stands in the way of issuing them? The buyers of the bond need to be assured that the European Union will be able to service the interest. That would require that the EU be endowed with sufficient resources (i.e. taxing power) and the member states are very far from authorizing such taxes. The Frugal Four – the Netherlands, Austria, Denmark, Sweden (they are now five because they were joined by Finland) – stand in the way. The taxes would not even need to be imposed, it would be sufficient to authorize them. Simply put, this is what makes issuing perpetual bonds impossible.
Q) Can’t Chancellor Merkel who is determined to make the German presidency a success do something about it?
A) She is doing her best but she is up against a deeply engrained cultural opposition: the German word Schuld has a double meaning. It means debt and guilt. Those who incur a debt are guilty. This doesn’t recognize that the creditors can also be guilty. It is a cultural issue that runs very, very deep in Germany. It has caused a conflict between being German and European at the same time. And it explains the recent decision of the German Supreme Court that is in conflict with the European Court of Justice.
Q) Who are the enemies of Europe on the outside?
A) They are numerous but they all share a common feature: they are opposed to the idea of an open society. I became an enthusiastic supporter of the EU because I considered it an embodiment of the open society on a European scale. Russia used to be the biggest enemy but recently China has overtaken Russia. Russia dominated China until President Nixon, understood that opening and building up China would weaken Communism not only but also in the Soviet Union. Yes, he was impeached, but he, together with Kissinger were great strategic thinkers. Their moves led to the great reforms of Deng Xiaoping.
Today things are much different. China is a leader in artificial intelligence. Artificial intelligence produces instruments of control that are helpful for a closed society, and represent a mortal danger for an open society. It tilts the table in favor of closed societies. Today’s China is a much bigger threat to open societies than Russia. And in the US there is a bipartisan consensus that has declared China a strategic rival.
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