Davos 2012: George Soros warns 'debt crisis could destroy European political union'

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George Soros, the billionaire investor, has warned that the eurozone debt crisis could destroy European political union.

"The measures introduced by the European Central Bank ... have relieved the liquidity problems of European banks but they did not cure the financing disadvantage from which the highly indebted member states suffer.

"Half a solution is not enough. It leaves the weaker members of the eurozone relegated to the status of third world countries that become highly indebted in a foreign currency," he added.

Germany he said was now acting as the "taskmaster", instead of the IMF (Berlin: MXG1.BE - news) imposing tough fiscal discipline.

"This will generate both economic and political tensions that could destroy the political union," claimed Mr Soros who was speaking at the annual press lunch at the World Economic Forum in Davos.

"There is a real danger that the euro will undermine the political cohesion of the European Union."

Mr Soros said he was not sure whether European authorities had "deliberately prolonged the crisis atmosphere in order to maintain the pressure on these countries or if they had been driven to their course of action by divergent views which they could not reconcile in any other way."

"Either way it is Germany that dictates European policy because at times of crisis the creditors are in the driver's seat," he added. "The trouble is that the austerity that Germany wants to impose will push Europe (Chicago Options: ^REURUSD - news) into a deflationary debt spiral"