Billionaire investor George Soros said German-led austerity demands worsen the debt crisis and risk pushing Germany into a depression that’s already taking hold of the euro area’s rim.

A policy of fiscal retrenchment “is pushing Europe into a deeper and longer depression,” Soros said during a speech in Berlin Monday. “The German public doesn’t yet feel it and doesn’t quite believe it, but it’s all too real in the periphery and it will reach Germany in the next six months or so. My message is that the looming depression is largely self-inflicted and the nightmare can be escaped.”

Debate in Germany is shifting toward preserving the euro, Soros said. While one option is for Germany to leave the 17-nation euro area, it would be less costly for Europe’s biggest economy to preserve the currency union and play the role of “benevolent hegemon.”

That would require Germany to embrace a so-called debt redemption fund for the euro area proposed by Chancellor Angela Merkel’s council of economic advisers and “refrain from pressing more pro-cyclical austerity programs” on the region’s highly indebted countries, Soros said.

The Bundesbank, Germany’s central bank, is clinging to an outmoded policy focused on fighting inflation while “the danger is deflation,” he said. European Central Bank President Mario Draghi’s offer of unlimited sovereign-bond buying is an efficient solution “which is going to work as a stopgap.”

As the strongest creditor country, “Germany is in the driver’s seat,” Soros said. “Whether you like or not, your policies largely determine the outcome of the current crisis. It’s five minutes after midnight, let’s say.” 

(Bloomberg)