Feet to the Fire

The reality?

An increasing sense the German's have enough.

No more short-term fixes. No more equivication (if there ever was?)

Its the hard way. Or ......

Guido Westerwelle's (Germany's Foreign Minister) writes in this morning's FT:

'Only when states regain trust by immediate and through reforms, can the crisis be overcome.'

And:

'Putting the ECB's printing presses to work might at best bring short-term relief. But it will have dire consequences, both raising inflation and dissipating vitally important incentives for reform.'

The Bundesbank quickly re-iterates the ECB will not underwrite any quick fix:

'The economic costs of any form of monetary financing of public debts and deficits outweigh its benefits so clearly that it will not help to stabilize the current situation in any sustainable way,' Bundesbank President Jens Weidmann, who also sits on the ECB’s Governing Council, said in Frankfurt today. 'The lack of success in containing the crisis does not justify overstretching the mandate of the central bank and making it responsible for solving the crisis.' <Bloomberg>

What does this mean?

(1) Limited ECB bond buying (= maximum Euro 20 billion a week) & continued steralization.

(2) Nothing less than severe (fiscal) austerity throughout large chunks of Euro-Zone.

The Euro may survive. It may not.

But either way the economic adjustment is going to be VERY painful.