George Soros’ advice for the euro zone

[Dover]

Excerpt:

...The bailout fund, he said, “was designed as a way of providing guarantees on government bonds, but for that purpose it is clearly inadequate. It cannot be stretched to cover Italy and Spain.”

But the bailout fund is big enough, Soros thinks, to save Europe in a different way. “It needs to be used to guarantee the banking system,” he said . “That would create a lender of last resort, which is currently lacking.”

The bailout fund, he continued, could take the solvency risk, which is beyond the legal right of the European Central Bank. “And for that,” he said, “there is plenty of money.” Thus shored up, the banks would be able to buy the high-yielding government debt of the European countries that are currently struggling to find lenders.

Banks would be encouraged to hold their liquidity in Treasury bills, Soros said, which they could sell to the European Central Bank at any moment. “So it is the equivalent of cash, and it would yield more than cash, therefore they would hold it,” Soros said. “That would allow countries like Italy and Spain during this crisis period to borrow at negligible cost.”

cont'd

http://blogs.reuters.com/chrystia-freeland/2011/11/11/george-soros-advice-for-the-euro-zone/