Soros: Three steps to avoid a second Great Depression

Hedge fund guru George Soros believes three bold steps need to be undertaken to stave off the threat of the world entering a second great depression.

Writing in the Financial Times, the billionaire investor said eurozone policymakers must push through proposals to create a common treasury for the continent.

In the interim, Europe should a establish a new intergovernmental agency that enables the European Central Bank to use the European Financial Stability Facility's funds, Soros said.

He also believes Europe's beleaguered banking system needs to be guaranteed and forcibly recapitalised, with the ECB then instructing banks to maintain credit lines and loan portfolios.

The chairman of Soros Fund Management said recapitalising Europe's banks would help prevent further deleveraging from deepening the crisis.

"These arrangements would stop the concentrated deleveraging that is one of the main causes of the crisis. Completing the recapitalisation would remove the incentive to deleverage."

Soros' final step involves the ECB enabling Spain and Italy to refinance their debt at a low cost. He suggested the ECB provide further liquidity to European banks, which would in turn allow them to buy treasury bills from Italy and Spain.

Taken together, Soros said such measures would allow Greece to default without causing a global meltdown.

"Financial markets are driving the world towards another Great Depression. The authorities, particularly in Europe, have lost control of the situation. They need to regain control and they need to do so now, " Soros said.

"These steps will calm markets and give Europe time to develop a growth strategy, without which the debt problem cannot be solved."