Peripheral European countries will continue to weaken: Soros

Billionaire investor George Soros is not happy with the way European officials are currently dealing with their peripheral debt crisis and thinks their policies will only further weaken these countries.

It is a mistake to impose high interest rates for bailout loans to peripheral European countries, said Soros in a Project Syndicate commentary.

Doing so will make it “impossible” for them to gain competitiveness relative to stronger countries like Germany.

“Divergences will continue to widen, and weaker countries will continue to weaken indefinitely,” said Soros.

Economic competitiveness broadly means the ability of a country’s products and services to compete in the global market.

For peripheral Europe, unfortunately, having higher borrowing costs compared to core Europe gives their businesses a disadvantage.

This disadvantage would further dent tax revenues, which in turn triggers the deterioration of sovereign credit conditions.

Of course, this divergence and weakness is a chief cause of the sovereign debt crises in the first place because the tax revenues in these countries were not strong enough to fund government expenses.

Moreover, improving competitiveness is essential for the improving of sovereign credit conditions.

Soros said a better policy for European officials is to set interest rates on rescue packages at the same rate at which the European Union can borrow from the market.