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George Soros proposes debt with no end date to save divided EU

Tom Rees
George Soros - FABRICE COFFRINI  /AFP

The European Union should issue debt with no end date to “save” the bloc from the twin threats of coronavirus and climate change, billionaire financier George Soros has proposed. 

The legendary investor who “broke the Bank of England” argued that perpetual bonds, also known as consols, could break the deadlock as the divided region battles over a Covid-19 rescue package

Perpetual bonds are debt with no maturity date, meaning the bloc would only have to pay the interest. In 2014, Britain paid back consols that had their origin in the South Sea Bubble and Napoleonic Wars.

“If the EU is unable to consider it now, it may not be able to survive the challenges it currently confronts,” Mr Soros warned, highlighting the risk that Italy could follow the UK out of the bloc.

He said in an interview with the Dutch newspaper De Telegraaf that the frugal Northern countries led by the Netherlands must accept perpetual bonds or face a doubling of the EU budget. With a 0.5pc interest rate, a €1 trillion bond would only cost the bloc £5bn every year, a “negligible” amount, Mr Soros said.

Europe has struggled to reach a deal to spread the cost of the coronavirus crisis. Southern European countries have the most fragile public finances and have been the hardest hit by Covid-19. Italy, France and Spain proposed issuing share debt known as “coronabonds” but the plan faced fierce opposition from the North.

A €500bn recovery fund that would issue grants to countries has been proposed by France and Germany but is yet to be signed off by the bloc.

Economists have questioned whether consols are the most cost effective way of funding the recovery in Europe with yields on many Government bonds already in negative territory. 

“Why would AAA-rated treasuries that can issue debt at negative interest all the way up to 10 years want to pay comparatively higher coupons by issuing consols?” said Prof Giancarlo Corsetti at the University of Cambridge.

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Mr Soros made his name betting on the pound’s tumble in 1992 when the UK was forced to pull the currency from the European Exchange Rate Mechanism. He is also known for his support of liberal political causes and donated money to an anti-Brexit campaign.

Mr Soros raised concerns that “badly treated” Italy could follow Britain out of the EU amid fury in Southern Europe over a lack of support from their Northern partners.

“What would be left of Europe without Italy? Italy used to be the most pro-European country,” he said.