'We are in a more dangerous situation than in 2008'

The ongoing sovereign-debt crisis in the Eurozone is much more serious than the global financial meltdown of 2008. If the European banks fail, it will have financial implications globally if the current situation is not brought under control. The Euro zone faces a “draconian austerity” as a result of the measures it has employed to deal with the sovereign-debt problems.

That was the opinion of well-known financier George Soros, the Hungarian-American business magnate, investor and philanthropist.

Delivering a lecture at Azim Premji Foundation in Bangalore today, he said the last few years had done the most damage to the global markets.

The Eurozone crisis was much more serious than the housing market crisis in the US in 2008 and was a direct consequence of the US slowdown, said Soros who is known as ‘The Man Who Broke the Bank of England’ because of his $1 billion in investment profits for his Quantum hedge fund during the 1992 Black Wednesday UK currency crisis.

“This crisis reveals the weaknesses in the formation of the Euro,” he said, speaking on the crisis that has engulfed the Eurozone.

He believed that the crisis, which is today primarily hitting Europe, could also impact the US. The Euro crisis was a direct consequence of the overuse of sovereign credit. Globalisation and deregulation of financial markets went together. Also, markets don't always trend towards equilibrium. It creates a boom-bust cycle.

Growth would be negative in the developed world and would be slow in the developing countries. He said growth rate in the developed world would decline going forward and stay positive in the developing world. Developing countries would be affected by the crisis but not as much as developed.

He expounded on his theory of reflexivity, which is a stark diversion from the widely-held belief of ‘Market Fundamentalism’. Citing Karl Popper and his father as his influences, Soros went on to explain why market fundamentalism, the belief that a market without regulation ensures equitable distribution of resources was a flawed world view. Soros said a market without regulation would often be exposed to crises, as seen in 2008 and the current Euro crisis.

Between 1979 and 2011, Soros gave away over $8 billion to human rights, public health, and education causes.

He thought India was a fascinating country and increasingly important in the world. “I am long-term optimistic about India.” He warned that financial markets have grown too big and too powerful in the world. “Regulation in the banking industry has not been very successful,” he added.

On his philanthropic initiatives, Soros said, “If I can contribute to making the world a better place, then that is good.” Soros advocates democracy across the world and had recently visited Myanmar in this context. Commenting on the political and economic decline of the developing world, Soros commended the developing world on the leaps they were making on both fronts.