Billionaire investor George Soros has warned that European leaders have a "three-month window" to save the euro, or risk the destruction of the eurozone and a "lost decade". Describing the crisis as a banking problem and a problem of competitiveness, rather than a fiscal or debt crisis, Soros added that European leaders have failed to truly understand the nature of its economic woes.

Speaking at the Festival of Economics in Italy, Soros likened the European Union to a financial and political bubble that could pop as a result of the eurozone crisis. According to Soros, the eurozone is now at an inflection point with just three months left on its lifeline.

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Arguing that the focus on austerity has been the wrong remedy for the wrong problem, he added:

"The authorities didn't understand the nature of the euro crisis; they thought it is a fiscal problem while it is more of a banking problem and a problem of competitiveness. And they applied the wrong remedy: you cannot reduce the debt burden by shrinking the economy, only by growing your way out of it.The crisis is still growing because of a failure to understand the dynamics of social change; policy measures that could have worked at one point in time were no longer sufficient by the time they were applied."

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On Greece, Soros said he expects that the Greek public, in June 17 elections, will be "sufficiently frightened by the prospect of expulsion of the European Union" to elect a government prepared to abide by the austerity terms required to qualify for future bailout funds, the terms would ultimately prove impossible to meet.

"No government can meet the conditions so the Greek crisis is liable to come to a climax in the fall. By that time the German economy will also be weakening so that Chancellor Merkel will find it even more difficult than today to persuade the German public to accept any additional European responsibilities. That is what creates a three months' window."

"In a crisis, the creditors are in the driver's seat and nothing can be done without German support," he said, noting that public opposition to austerity in the eurozone "is likely to grow until the policy is reversed."

While he thinks an orderly break-up of the euro could be possible "in a few years' time", the likelihood is that it would survive because a breakup would be devastating not only for the periphery, but also for Germany.

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He said Germany would be left with large unenforceable claims against the periphery countries, with the Bundesbank alone having over a trillion euros of claims against other central banks by the end of this year.

So Germany is likely to do what is necessary to preserve the euro - but nothing more.That would result in a eurozone dominated by Germany in which the divergence between the creditor and debtor countries would continue to widen and the periphery would turn into permanently depressed areas in need of constant transfer of payments. That would turn the European Union into something very different from what it was when it was a "fantastic object" that fired peoples' imagination. It would be a German empire with the periphery as the hinterland.