Bloomberg News

Schaeuble Says Overreacting Investors Created Huge Uncertainties

November 17, 2011

(See EXT4 for more on Europe’s debt crisis.)

Nov. 17 (Bloomberg) -- German Finance Minister Wolfgang Schaeuble said bond investors have created “huge uncertainties” by overreacting to Europe’s sovereign debt crisis, undermining the notion of rational markets.

Before the crisis, investors assumed that governments would cover excessive debt even though rules were in place on deficits and European Union treaties contained a so-called no-bailout clause, Schaeuble said. That resulted in low risk premiums in countries such as Italy, Portugal and Greece.

“On the other hand, afterwards when the markets began to become worried, they overreacted,” Schaeuble said in a speech to an insurance conference in Berlin today. Bond yields for indebted states “have shot up in the shortest time to levels that can no longer be rationalized.”

It will be up to European leaders, who agreed on measures to battle the widening crisis at an Oct. 26 summit, to “prevent contagion effects” to protect the region’s financial system, Schaeuble said.

--Editors: Simone Meier, Leon Mangasarian

To contact the reporters on this story: Patrick Donahue in Berlin at pdonahue1@bloomberg.net; Brian Parkin in Berlin at bparkin@bloomberg.net

To contact the editor responsible for this story: Patrick Donahue at pdonahue1@bloomberg.net


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