Dec. 7 (Bloomberg) -- European finance ministers ruled out immediate aid for Portugal and Spain or an increase in the 750 billion-euro ($1 trillion) crisis fund, counting on European Central Bank bond purchases to calm debt-spooked markets.
“Whoever bets on the collapse of the euro is wasting his money,” German Finance Minister Wolfgang Schaeuble told reporters in Brussels after a two-day meeting. “We shouldn’t make markets any more nervous. Instead, we should do everything to get markets to have a more realistic view of the situation.” (emphasis added)
With all due respect to Germany which is shouldering the brunt of the EU credit mess, expecting the markets to turn a blind eye to reality while the ECB becomes the buyer of last resort is not a solution. Reality is the solution. It's called write downs, restructuring, haircuts, even defaults. Thanks to fractional reserve banking, governments are disconnected from reality. The market's job is to impose reality. That's why governments hate markets; markets expose governments' mismanagement and obfuscation.
In this respect, the debt markets have a realistic view of the situation. It's the equity markets, the prime beneficiaries of stimulus money, that do not. Keep your eyes on the debt markets.
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