Billionaire investor George Soros called on Europe to start a fund to buy Italian and Spanish bonds, warning that a failure by leaders meeting this week to produce drastic measures could spell the demise of the currency.

Policy makers should create a European Fiscal Authority to purchase sovereign debt in return for Italy and Spain implementing achievable budget cuts, Soros said in an interview in Londonyesterday. Funding for the purchases would come from the sale of European Treasuries, which would have low yields because they would be backed by each euro member, he said.

France and Italy are urging Germany to take decisive action to end the 2 1/2-year-old debt crisis after Spain's 10-year bond yields jumped to more than 7 percent last week, a level that economists consider unsustainable. Leaders are at an impasse as they prepare to meet in Brussels on June 28. That risks disaster because Europe is running out of time to show investors it will do what's necessary to save the euro, Soros said.

"There is a disagreement on the fiscal side," Soros, 81, said in an interview with Bloomberg Television's Francine Lacqua at his home in London. "Unless that is resolved in the next three days, then I am afraid the summit could turn out to be a fiasco. That could actually be fatal."

German Chancellor Angela Merkel said in a June 15 speech that she opposed "premature" proposals for issuing euro-area bonds, arguing that such debt can't be sold until there is a full fiscal union for the region. Germany has also demanded that Greece, the recipient of a 240 billion-euro ($300 billion) rescue, and other indebted countries implement budget cuts in return for rescue funds needed to make their bond payments. Merkel is worsening Europe's crisis because countries need growth, not austerity, to pay down their debt, Soros said.

'Wrong Direction'

"Merkel has emerged as a strong leader," Soros said. "Unfortunately, she has been leading Europe in the wrong direction."

David Fuller's view European politicians are certainly not wanting for unsolicited outside advice. I think George Soros is right by suggesting that markets will respond badly to another inconclusive summit. We had a preview of that with today's stock market declines of 3.67% and 4.02%, respectively, for Spain and Italy.

Spain's IBEX halted a steep decline with an upside key day reversal on 4th June but the rally has lost momentum with three downward dynamics. It needs a close above 7000 to reverse prospects for some further retracement of recent gains. Italy's MIB is even weaker and needs to close above 14,000 to remove pressure on its recent lows. The Euro STOXX Banks Index has also fallen back and needs to close above 90 to reaffirm support from its recent lows.

In agricultural commodities, soybeans, corn and wheat, shown on weekly charts for additional perspective, have surged on hot, dry conditions and a break in the weather is required to check this advance.