WHEN: CNBC EXCLUSIVE, today Thursday, 23rd October.
Following is highlights of the unofficial transcript of a CNBC exclusive interview with George Soros, Chairman of Soros Fund Management with CNBC's Annette Weisbach.
Following is a link to embeddable video clip of the interview on CNBC.com http://video.cnbc.com/gallery/?video=3000321300.
All references must be sourced to a 'CNBC exclusive interview'.
CNBC's Annette Weisbach (AW): Let us look at the situation at the Ukraine right now. It looks like a frozen conflict. What is your take of the situation?
George Soros (GS): Well, it's really up to Russia and to Putin, whether he keeps it frozen or he renews active warfare, because he, at the moment has the upper hand, because the Russian army is confronted by the Ukrainian army. The Ukrainian army is no match for Russia.
AW: What do you think will be the development in the next months or the next year for the Ukraine. Will Russia eventually say "Well, yes, ok, we're bowing to the pressure from Europe"?
GS: Well, Europe needs to act together and be more active in helping Ukraine fight for itself, because Ukraine wants to be part of Europe. Effectively, the attack on Ukraine is, indirectly, an attack on the European Union. Certainly, it's in Europe duty and interest to enable Ukraine to fight for its independence.
AW: If you look into the crystal ball, as you call that in the States, what do you think are the next steps by Putin?
GS: I think that he is probably going to wait and not renew active warfare because of the fear of additional sanctions, which are hurting Russia. And rather wait for the winter and see if Ukraine can be made collapse for lack of support. And that's why I wrote this article "Wake up Europe", to warn Europe that they've got to be more active, pro-active, enabling Ukraine to fight for itself.
AW: So, do you think… what should Europe do?
GS: Well, put forward a three-point plan. You need a $20 billion cash injection to replenish the currency reserves. You need to provide some hard currency support for the reorganization of the debt voluntary, a market-based reorganization as opposed to default, which will then bring down the interest rates that Ukraine has to pay. So that would be the second step. And the third, most important, is the reorganization of NAFTAGAS, the state-owned gas monopoly, which is the main source of corruption in Ukraine and a tremendous source of waste in the use of gas, because the households can't regulate the temperature, so actually in Ukraine people opens the windows in the winter. That's the most wasteful use of energy that I've ever seen! This could be regulated going market-based system, where the households would have to pay the cost, the real cost, and the needy households would be given a subsidy per room that would enable them to be stable.
AW: You have been already speaking about the sanctions on Russia. Do you think that sanctions on Russia will really convince Mr. Putin to stop his aggressive foreign policy?
GS: They may not convince him to change course, but they're certainly having a big effect on Russian economy and reducing his ability to engage in the aggression that currently does.
AW: What do you make of Angela Merkel's role in the recent approach, or foreign policy approach, towards Russia here in Europe? Do you think she was a role model or has she done something wrong?
GS: No. I think that she has emerged as a true European statesman, recognising the threat that Russia represents to the European Union and she stuck her neck out further than any other issue against German business opinion and public opinion. And it's only after the shooting down of the civil aircraft that the public opinion has caught up with her, so she has been a true leader as far as policies towards Russia. But her advocacy of fiscal constraints is in contradiction, incoherent, in relation with having to fight rather than enabling Ukraine to fight. So the sanctions on Russia exacerbate the problems of the European Union, which are basically deflation and depression. It's a depressive, whereas she ought to be more, even more of an advocate for pro-active support for the Ukrainian economy, because that would be a stimulus not only for Ukraine, but also for the European Union. So, actually, that would be a more successful policy.
AW: You were using very harsh words when you talked about the state of the European economy. Perhaps you could explain why do you think that Europe is in a depression and deflation? I think that Mario Draghi doesn't share your views…
GS: Well, I'm not the only one. I think that now this is pretty generally recognised and this is, the policy now emerging of the European Central Bank, that is in the making, I think everybody expects it to happen in December. But finding the fiscal stimulus, at least as far as Ukraine is concerned, would be a positive contribution in reinforcing that. Because leaving it only to monetary policy, is one-sided. You need fiscal stimulus as well.
AW: But you also think that European governments should use more fiscal stimulus in order to combat the recessionary environment?
GS: Yes. You need a more balanced policy, and I think that applying it to Ukraine would be very efficient use for instance for project bonds, because reorganizing NAFTAGAS would require at least $10 billion of project bonds, that the European investment banks could provide and would be eager to provide. It would have a very high return, probably pay for itself within two years.
AW: That's a promising investment opportunity, so now I need to ask you also something on something you don't want me to ask…
GS: Probably I don't want…
AW: Let me get your thoughts on the general market volatility. We've seen a lot of volatility in recent weeks. Do you think that's something that's here to stay or is it a sign of…?
GS: I'm no longer active in the managing money so I'm now an outside observer. I don't think my views are as sharp as they used to be.
AW: But what do you think about Europe as a place to invest money in in general terms? What do you think about Europe as a place to invest money? Is Europe still a compelling place or is it?
GS: Well, I think right now you've got a lot of problems. Ukraine is one, but hopefully they will solve the problem. Then it will become more interesting.
AW: Thank you very much.
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