Soros: Greece Still Faces the Danger of a “Death Spiral”

By Apr 14, 2010, 10:00 AM Author's Blog  

Renowned investor George Soros has warned that the joint European Union/IMF rescue deal to help Greece tackle its debt crisis may not be enough.

In comments picked up by AFP at an event in London late yesterday organized by the Economist magazine, Soros said that Greece still faces the danger of a “death spiral” because the cost of borrowing in the euro zone’s rescue package is too expensive.

Desperate to halt the Greek crisis that has hammered the euro, 15 euro zone partners offered on Sunday to lend Athens a €30 billion aid package which would give it three-year loans at 5% rate if it can’t raise money in capital markets. The IMF stands ready to chip in another €15 billion. But Soros said he believes the move is only “a little step” that may not stop Athens falling into a “debt spiral”.

“While five percent is better than what the market is willing to offer… a rescue package should offer concessional rates,” he said.

If Athens is forced to pay interest rates on borrowing that are too high “they have then to tighten even further, then your tax receipts go down and the economy goes further into tanking and then you go into a death spiral”, the 79-year-old noted.

“That is still a danger that remains for Greece,” he added.

Soros called for euro zone countries to put in place a mechanism that would permit Greece and other members of the single currency, such as Spain, to borrow on favorable terms.

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