Why is Europe in such a difficult financial situation? Billionaire George Soros believes he knows. If only Germany would cooperate and offer more support to its weaker neighbors, everything would be OK. That is, of course, if nations like Spain, with its aged infrastructure, 1980s-rooted GDP profile and 26% unemployment could entirely be fixed by Angela Merkel.

Soros said in a speech:

The political problem is that Germany did not seek the dominant position into which it has been thrust and it is unwilling to accept the obligations and liabilities that go with it. Germany understandably doesn’t want to be the “deep pocket” for the euro. So it extends just enough support to avoid default but nothing more, and as soon as the pressure from the financial markets abates it seeks to tighten the conditions on which the support is given.

The financial problem is that Germany is imposing the wrong policies on the Eurozone. Austerity doesn’t work. You cannot shrink the debt burden by shrinking the budget deficit. The debt burden is a ratio between the accumulated debt and the GDP, both expressed in nominal terms. And in conditions of inadequate demand, budget cuts cause a more than proportionate reduction in the GDP — in technical terms the so-called fiscal multiplier is greater than one.