Soros: Italy Market Calm Will Be Short-Lived

George Soros
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George Soros

The market recovery which has brought Italy's borrowing costs down over recent months is unlikely to be sustained for long, while the fundamental problems facing the euro zone remain, investor George Soros said in comments published on Sunday.

Helped by European Central Bank guarantees and buoyed by the flood of cash released by Japan's aggressive monetary easing policies, pressure on Italy's borrowing costs has dropped sharply since the resolution of the stalemate following February's deadlocked national elections.

Yields on Italy's 10-year government bonds have dropped below 4 percent and the spread between Italian BTPs and their more trusted German counterparts is around 252 basis points, less than half the level seen during the crisis which threatened the entire euro zone in late 2011.

The daily La Stampa newspaper quoted the billionaire hedge fund manager as saying the recovery "will not last long. We are in a situation that is far from being in balance."

New Prime Minister Enrico Letta has repeatedly called for Europe to extend its focus to boosting economic growth and fighting rocketing youth unemployment as well as enforcing budget rigor.

But he faces a huge challenge with a public debt of around 130 percent of annual economic output, the second highest level in the euro zone after Greece, an economy which has barely grown in two decades and a political system generally recognized as dysfunctional.

Soros, who was speaking at an event in the northern Italian city of Udine, said Italy was "no longer master of its own destiny" and depended on credible coordinated action by the European Union.

He said more action was needed to unlock credit to small businesses and repeated his longstanding calls for jointly issued euro bonds and common fiscal policies.

"The evidence is growing that austerity policies do not work, sooner or later I expect the tendency to turn. The sooner it happens, the better."