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Nov. 3 (Bloomberg) -- Greece faces the “real danger” of a disorderly default, which raises the specter of a run on banks in other countries, billionaire investor George Soros said.
Any Greek debt reduction “must be done in an orderly manner” and authorities need to ensure that Greek banks are “kept alive” and deposits are safe, Soros said in a speech in Budapest today.
“There’s a real danger of a disorderly default,” Soros said. “I’m not at all sure it’ll happen, but it’s a real danger.” Without support for the lenders, “you’re liable to have a run on the banks in other countries as well. That’s the danger of a meltdown.”
European leaders are grappling to keep Greek’s debt crisis from spreading to other countries like Spain or Italy. European authorities should use their rescue fund to buy Greek government bonds from the European Central Bank and the International Monetary Fund to give Greece a chance to “work its way out” of the crisis, Soros said.
A proposed 50 percent voluntary haircut on Greek debt by private investors, which would reduce the country’s overall debt burden by 20 percent, “isn’t enough,” according to Soros.
European leaders should also have used the EFSF to guarantee the banking system against failure in exchange for a pledge from lenders that they would maintain their portfolios and credit lines, Soros said.
Italy and Spain should be encouraged to issue Treasury bills and spur banks to hold their liquidity in this short-term debt, which they can sell to the ECB any time, he added.
“Europe is right now at the crisis point and the authorities are doing too little and too late,” Soros said, adding that “they can still get it right.”
Soros, 81, best known for breaking the Bank of England, said the “euro is here to stay” as “you can’t unscramble the omelette.”
--Editors: Balazs Penz, Andrew Langley
To contact the reporter on this story: Edith Balazs in Budapest at firstname.lastname@example.org
To contact the editor responsible for this story: James M. Gomez at email@example.com