Billionaire investor George Soros no longer thinks that perpetual bonds are the way to go for the European Union as it works to break out of the Covid recession. Back in May Soros was high on such debt, but now he has written an opinion piece in The Guardian saying just the opposite.
His comments come after a small diplomatic row between the U.S. and Hungary broke out due to a Hungarian government official having described George Soros as a Nazi.
Investopedia explains that a perpetual bond, also known as a “consol bond” or “prep,” is a fixed income security with no maturity date. As such it is often considered a type of equity instead of debt. A major disadvantage to perpetual bonds, however, is that they are not redeemable. But their major benefit is that they pay a steady stream of interest payments forever.
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In a May interview with the Dutch newspaper De Telegraad George Soros said, “A 1 trillion-euro bond would cost 5 billion euros a year, assuming an interest rate of 0.5%. The consols would not need to be sold all at once; they could be issued in tranches and they would be snatched up by long-term investors like life insurance companies.”
So why has George Soros changed his mind? Well now that Poland and Hungary have vetoed the next EU budget and the Covid-19 recovery fund, Mr. Soros feels that it would be impossible for the European Union as a block to do so. The deep division among the member states means that such a move is no longer viable.
So instead George Soros is calling on the EU member states to issue perpetual bonds individually. This is because the member states will, of course, be around long term, but investors might see the moves by Poland and Hungary as a sign of instability in the European Union as a whole.
“Perpetual bonds offer the great advantage that the principal never has to be repaid; only the annual interest is due,” explains Soros.” The discounted present value of future interest payments diminishes over time – it will approach, but never reach, zero. ”
“A certain amount of financial resources – say, the €1.8tn currently planned – would go several times further if it were used to issue perpetual bonds rather than ordinary bonds,” adds George Soros. “This would largely solve Europe’s financial problems.”
George Soros also explains that once some EU member states make this move then the recalcitrant ones will see its advantages and so change their own policies.
Meanwhile, Szilard Demeter,a Hungarian ministerial commissioner and head of the Petofi Literary Museum in Budapest, has retracted slanderous comments which he made about George Soros over the weekend. In an Internet post Demeter compared Soros to Hitler saying, “Poison gas flows from the capsule of a multicultural open society, which is deadly to the European way of life.”
The Hungarian government has made George Soros its enemy because the investor has been critical of it and supports democracy and human rights groups there which oppose the current regime.
The retraction came after the U.S. Embassy in Hungary posted a condemnation of the statements on its official Twitter account. The statement read, “The U.S. Embassy in Budapest strongly condemns the statements made in a recent op-ed equating current debates in Europe with the horrific murder of millions of people during the Holocaust. There should be no tolerance for Holocaust relativization and minimization of any kind.”
That American officials took such a step might be due to the fact that President Trump is on his way out of office. The President and his supporters have been among those who vilify Mr. Soros for his liberal activism.