The Tragedy of the European Union

Disintegration or Revival?


By George Soros

With Gregor Schmitz

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The European Union could soon be a thing of the past. Xenophobia is rampant and commonly reflected in elections across the continent. Great Britain may hold a referendum on whether to abandon the union altogether. Spurred by anti-EU sentiments due to the euro crisis, national interests conflict with a shared vision for the future of Europe. Is it too late to preserve the union that generated unprecedented peace for more than half a century?

This is no mere academic question with limited importance for America and the rest of the world. In the past decade, the EU has declined from a unified global power to a fractious confederation of states with staggering unemployment resentfully seeking relief from a reluctant Germany. If the EU collapses and the former member states are transformed again from partners into rivals, the US and the world will confront the serious economic and political consequences that follow.

In a series of revealing interviews conducted by Dr. Gregor Peter Schmitz, George Soros — a man of vast European experience whose personal past informs his present concerns — offers trenchant commentary and concise, prescriptive advice: The euro crisis was not an inevitable consequence of integration, but a result of avoidable mistakes in politics, economics, and finance; and excessive faith in the self-regulating financial markets that Soros calls market fundamentalism inspired flawed institutional structures that call out for reform. Despite the considerable perils of this period, George Soros maintains his faith in the European Union as a model of open society. This book is a testament to his vision for a peaceful and productive Europe.



Is it too late to save the European Union? In January 1999, when the euro was created, the single currency project looked like the most decisive step toward Europe’s “ever closer union,” a process that began with the Treaty of Rome in the aftermath of the Second World War. The euro was supposed to create a unified continental economy that would rival the United States in its economic dynamism and financial stability. It was designed to eradicate the economic divergences that contributed to what Winston Churchill described as Europe’s “Thirty-Year Civil War” from 1914 to 1945. And it was supposed to make the EU an even more inspiring model, at the point in history when the Soviet empire was collapsing and the time seemed ripe for new geopolitical arrangements based on mutual economic benefit and democratic cooperation, instead of coercion by imperial powers.

Fifteen years later, it is obvious that this project has gone badly wrong. Xenophobic and neo-fascist movements have gained unprecedented support in the run up to the 2014 European elections. Britain is planning an EU exit referendum. And all over Europe national interests are perceived to be in conflict as governments respond to anti-EU sentiment among their voters. This reversal of European integration is clearly linked to the euro and the global financial crisis. But what exactly went wrong and can it be put right?

If anyone can offer an authoritative answer, it is George Soros. The Tragedy of the European Union is deftly organized in a series of in-depth interviews conducted over several months in 2013 by Gregor Peter Schmitz, Europe Correspondent for Der Spiegel, one of Europe’s leading news-magazines. Soros’s insights, not just on Europe but also on global economic politics and financial markets, are uniquely valuable for three mutually reinforcing reasons: Firstly, because the disintegration of once-great nations and empires is often triggered by financial crises. And nobody understands crises better than Soros. As the world’s pre-eminent currency speculator, Soros has shown repeatedly that he understands the interaction of markets and politics better than the people who run finance ministries and central banks. Bolstered by Schmitz’s introduction, which astutely frames the major themes and offers context, the interviews in this book present Soros’s insights—mainly about Europe, but also about the US, China, the Middle East, and elsewhere—with unprecedented clarity by focusing on specific personal experiences and historical events. Because of his astonishing investment record, his views on finance and economics are always in demand around the world.

But there are two other reasons why Soros’s comments in this book could have a greater effect than usual, especially on European policy debates. While Soros has achieved fame as the world’s most successful financial speculator, if he is remembered by history it will not be just for making his $20 billion fortune, but for spending it. By creating his Open Society foundations, Soros helped to tear down the Iron Curtain, demolish the Berlin Wall, and overthrow the communist dictatorships of Eastern Europe and the Soviet Union. Because of his decades of direct engagement in both politics and finance, he brings a personal insight to his analysis that few other commentators, or even politicians, can match.

Soros explains that his faith in the EU goal of “ever-closer union” was inspired by his father, who insisted, even in the midst of the Nazi holocaust, that they should bear no personal grudge against the German people as a whole. Unlike the British euro-sceptics or German conservative economists, who always believed that the single currency was doomed to failure, Soros expected the euro to succeed. For him, the euro crisis was not an inevitable consequence of over-ambitious integration, but a result of avoidable blunders and misunderstandings in politics, economics, and finance.

This emphasis on flawed understanding points to a third feature of Soros’s thinking that makes his analysis unique. Soros presents both the euro crisis and the financial collapse related to Lehman Brothers as classic examples of “reflexivity”—a process by which flawed economic or political theories become so powerful that they alter the social realities they are supposed to describe. This interference between perceptions and realities creates waves of instability in markets and political systems that few economists or politicians properly understand. Soros attributes his financial success mainly to focusing on reflexivity, and he uses this concept to diagnose the flaws of the euro project as well as to explain the US banking collapse.

In both cases, a misguided economic theory—the excessive faith in the self-regulating financial markets that Soros calls market fundamentalism—inspired flawed institutional structures. In Europe, the key institutional flaw was the Maastricht Treaty; in the US it was the excessive reliance on badly designed synthetic financial instruments like collateralized debt obligations and credit default swaps. The false economic theories embodied in these structures changed economic and financial conditions, setting up boom-bust cycles of initial over-performance and over-confidence, followed by self-reinforcing collapse. Because reflexivity is so central to Soros’s perspective, this book includes an article from the latest issue of the Journal of Economic Methodology in which Soros offers the most detailed and definitive account of his conceptual framework and its implications for economics, politics, and the philosophy of science. Comments from excerpts on Soros’s theory can be found in the Winter 2014 issue of JEM at

Nowhere have the reflexive misunderstandings of politicians and financial markets been more widespread and damaging than in Germany. Soros shows with detailed examples why Chancellor Angela Merkel’s approach to the euro is widening the divergences between creditor and debtor nations, leaving the subservient debtors resentful and disempowered. As a result, the European ideal of a voluntary community of open societies, linked by mutual economic interests, is beginning to resemble an old-fashioned empire ruled by a domineering German hegemon.

While hegemonic oppression is certainly not the intention either of Germany or the European leadership, the fact is that misguided responses to the euro crisis have turned the EU into a foreign oppressor in the eyes of many of its citizens—and not only in the peripheral states. Even in Britain, the euro crisis has intensified opposition to the entire European project and strengthened demands for total withdrawal from the EU. Many of the arguments Soros presents here could prove very influential both in the upcoming European Parliamentary elections, and in Britain’s planned referendum on EU membership, since the evident failure of Europe’s most important project is having a profound effect on British views. Soros argues that Britain currently enjoys the best available position, being part of the European Union but not part of the euro. Changing it would be detrimental both for Britain and for Europe as a whole. For Britain, EU withdrawal would undermine London’s position as Europe’s financial center and threaten foreign investment directed at the European single market. The European Union, in turn, would be diminished by Britain’s departure. Britain would cease to play its historic role of maintaining a balance between hostile blocks on the continent. Its departure would powerfully reinforce a process of economic and political disintegration that is already under way.

Yet a British vote to withdraw will become increasingly likely if the eurozone becomes a region of permanent economic stagnation and political alienation. Such an outcome seems almost inevitable to Soros if Germany maintains its present policy of preserving the euro by always offering the smallest possible concessions at the last possible moment.

This is what Soros calls Europe’s recurring nightmare. But a nightmare is a horror from which we can wake up. To awaken Europe Soros proposed a revolutionary notion: that Germany should “lead or leave the euro.” Either Germany should lead Europe toward some form of mutual debt and bank guarantees, or it should leave the euro and allow other countries to solve the currency’s systemic problems on their own, which according to Soros they would be quite capable of doing. A euro without Germany may sound like a shocking concept, but Soros spells out in detail how a “southern euro,” probably led by France, could become a viable currency.

Following the German elections Soros ceased to advocate that Germany should “lead or leave the euro.” The German electorate has decisively rejected the idea by keeping the party advocating it below the threshold of parliamentary representation; and no debtor country can afford to advocate it because it would be immediately punished both by the markets and by the European authorities.

For Soros, such a euro break-up was never an optimal solution. Far better would be for Germany to become a “benign hegemon,” accepting its responsibility to support the reconstruction of peripheral Europe, as the US supported post-war German reconstruction with the Marshall Plan. Perhaps this could even happen, now that Angela Merkel can contemplate her place in history, instead of her next election campaign. Let us hope Mrs. Merkel reads this book.


Chairman of the Institute for New Economic Thinking and author of Capitalism 4.0


It may have been her proudest moment, her first undisputed election victory after two previous nail-biters. It was September 22, 2013, and Angela Merkel was standing on the stage at the Konrad Adenauer House in Berlin. The pollsters had predicted a clear victory for Merkel and her Christian Democratic Union (CDU), together with its sister party, the Bavarian Christian Social Union (CSU), and even an absolute majority seemed within reach. Merkel’s supporters were jumping up from their seats, and as “Tage wie diese” (Days Like These) by the German punk band Die Toten Hosen boomed from the loudspeakers, CDU-CSU parliamentary floor leader Volker Kauder grabbed a microphone and began singing along. CDU secretary general Hermann Gröhe seemed on the verge of waving a small German flag that someone on the stage had handed him. But not on Merkel’s watch. Shaking her head in disapproval, she took the flag from his hand and removed it from the stage.

The symbolism was unmistakable. Even in her greatest moment of triumph, the chancellor was being careful not to indulge in German nationalism. After all, the rest of Europe, which had characterized Germany’s parliamentary election as a “European election,” was watching. Merkel was determined not to allow her victory to be seen as an exuberant display of national pride by people in Europe’s crisis-stricken countries, such as Spain, Italy, and Greece. But her intervention was to no avail. The next day, the headline “Merkel, Merkel Über Alles” appeared on the front page of the Spanish daily newspaper El Mundo, and the Greek newspaper Ta Nea ran the headline: “Europe Is Becoming Merkel-Land.”

How could it have come to this? Why is a country that rejects a leadership role in Europe once again being viewed by many as a ruthless hegemon, even a dominant occupying power? Why do protesters wave swastika flags when Merkel visits the Greek capital, Athens? How could the “German question” return with such vehemence, at a time when Germany is in fact one of the most important lenders to the crisis-ridden countries in the European Union (EU)? In his book Ein Europa, das es nicht gibt (A Europe That Doesn’t Exist), University of Bonn professor and historian Dominik Geppert writes: “Some of the political catchphrases of the July crisis after 1914—‘encirclement,’ ‘blank check,’ ‘flight to the front’ and ‘a leap into the dark’—feel unexpectedly topical in 2013.” Former foreign minister Joschka Fischer apparently holds a similar view. In a piece for the Süddeutsche Zeitung in June 2012, he wrote darkly: “In the 20th century, Germany destroyed itself and the European order twice in wars that involved crimes and genocide, in its efforts to subjugate the continent. It would be a tragedy and an irony alike if, at the beginning of the 21st century, a unified Germany were to ruin the European order once again, this time peacefully and with the best of intentions.”

These are confusing and even alarming questions, especially when embellished with scenes from the 2013 parliamentary election, in which the newly established Alternative für Deutschland (Alternative for Germany) party held “euro burnings” in front of the Brandenburg Gate in Berlin to draw attention to the fact that Germany is now experiencing the greatest destruction of money since the hyperinflation of 1923. The party’s leader, Bernd Lucke, provided “yet another allusion to those times of democracy in crisis,” as the Frankfurter Allgemeine Zeitung wrote, when he likened an alleged attack on him during a campaign speech to the actions of “gangs of thugs in the Weimar Republic.”

Today’s times of crisis prevail in a Europe in which euro-skeptics and anti-European parties from Greece, Spain, Great Britain, Belgium, France, and Germany are predicted to capture a total of 30 percent of the vote in elections to the European Parliament in May 2014. French president François Hollande warned: “A majority of the European Parliament could consist of anti-Europeans. This presents a true risk of paralysis.”

.     .     .

This book is about Germany and the crisis, including a crisis within its political leadership. But it is also a book about Europe and the weaknesses of its institutions and their future. In a European Union premised on the founding concept of its nation-states progressively moving toward a federation of states, these two poles—the German crisis and the European malaise—are inseparable. “The Treaties of Rome, and later the Maastricht Treaty, expressly affirmed the goal of an ‘ever-closer’ union. Walter Hallstein, the first and, thus far, only German president of the European Commission [Commission of the European Economic Community], said that the nation state is ‘not the unchanged measure of all things political.’ From this point of view, it was not a question of salvaging the nation states but of abolishing them. The goal was a United States of Europe as a European federal state,” writes historian Dominik Geppert.

In other words, the predominant and uniting ambition was that it would come to pass that important political decisions would no longer be made in Berlin, Paris, and London, but at the European level. This ambition was long the established standpoint in Germany. When top German politicians spoke with George Soros in the 1990s, they assured him that there was no longer a German but only a European foreign policy. And during the years of the euro introduction, then-chancellor Helmut Kohl’s declared motto was that a united Germany was only conceivable within a united Europe.

But that consensus has since been shattered. Privately, Merkel, as her biographer Stefan Kornelius fears, has long abandoned the collective model. In her view, the nation-states are responsible for their own plight and should resolve their own problems. In the 2013 election campaign, Merkel was no longer invoking the concept of “more Europe,” as the overwhelming majority of her predecessors had done, but instead proposed that powers could be returned to the nation-states—which amounted to “less Europe.” Brussels political scientist Jan Techau characterized such scenarios as a “breach of taboo in German foreign policy.” It seems that Merkel simply no longer believes in the creative power of European institutions, especially the European Commission, and would rather content herself with bilateral problem-solving approaches, in which Germany sets the tone. So, can we expect to be confronted with Berlin’s desire for a “German Europe”? Will close political unity be replaced by the “tragedy of the European Union,” as American Nobel laureate Paul Krugman predicts?

Only a few years ago, the project of European unification and the common currency, the euro, was on a roll. In his well-received 2004 book, The European Dream, political scientist Jeremy Rifkin explained why Europe—and not the United States—was the world’s role model, as did Mark Leonard, the co-founder and director of the European Council on Foreign Relations, in his 2005 book, Why Europe Will Run the 21st Century. Such ideas seemed by no means presumptuous at the time. The project of European unification was not just responsible for the longest period of peace on the continent since the sixteenth century. It had also shaped a multinational generation, which, thanks to uncomplicated border crossings and a uniform currency, was living together in greater harmony than any generation before it. In the distant future, historians were to look back on an era in which 7 percent of the world’s population was responsible for 32 percent of global trade and 50 percent of global social benefits.

There seemed to be no end in sight to the boom. The word Europe was closely linked to economic progress, be it in the form of low telephone rates, subsidies for Sicily, or impoverished parts of Portugal (and, as we sometimes forget, for structurally weak German regions), new industrial construction in Ireland and Spain, or more generally, joining the euro, which promised an additional economic boost. Harvard political scientist Joseph Nye recognized that the EU expansion policy was a global export success, especially compared with the nation-building disaster by the United States in Iraq and Afghanistan. And political scientist Ulrike Guérot even called Europe the “true modern world” when compared with the United States, because its expansion had taken place voluntarily.


On Sale
Mar 11, 2014
Page Count
208 pages

George Soros

About the Author

George Soros was named as the Financial Times Person of the Year for 2018, citing the standard bearer of liberal democracy and open society: the ideas which triumphed in the cold war, now under siege from all sides, from Vladimir Putin’s Russia to Donald Trump’s America.

For more than three decades, George Soros has used philanthropy to battle against authoritarianism, racism and intolerance. Through his long commitment to openness, media freedom and human rights, he has attracted the wrath of authoritarian regimes and, increasingly, the national populists who continue to gain ground, particularly in Europe.

He is chairman of Soros Fund Management and founder of a global network of foundations dedicated to supporting open societies. Soros  is the author of several bestselling books including The Crash of 2008 and The Crisis of Global Capitalism

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