* Soros says cannot rule out collapse of euro
* German budget savings "could destoy European project"
* Says Germany dragging neighbours into deflation
* Germany "isolated", should let wages rise
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BERLIN, June 23 (Reuters) - German's budget savings policy risks destroying the European project and a collapse of the euro cannot be ruled out, billionaire investor George Soros said in a newspaper interview released on Wednesday.
"German policy is a danger for Europe, it could destroy the European project," he told German weekly Die Zeit.
Soros, who earned $1 billion in 1992 by betting against the British pound, added that he "could not rule out a collapse of the euro".
"If the Germans don't change their policy, their exit from the currency union would be helpful for the rest of Europe," he said.
Chancellor AngelaMerkel unveiled plans earlier this month for 80 billion euros ($107 billion) in budget cuts over the next four years -- a package she hopes will bring Germany's structural deficit within European Union limits by 2013.
"Right now the Germans are dragging their neighbours into deflation, which threatens a long phase of stagnation. And that leads to nationalism, social unrest and xenophobia. Democracy itself could be at risk," Soros said.
"Germany is globally isolated ... Why don't they let their salaries rise? That would help other EU states to pick up."
Merkel on Monday defended her budget cut plans after U.S. President Barack Obama preached patience in clamping down on public spending. A German government official said on Tuesday Berlin did not expect to come under pressure at a G20 summit in Toronto this weekend to provide fresh stimulus measures. (Reporting by Paul Carrel and Stephen Brown; editing by Stephen Nisbet)