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World markets worried about containing Europe debt crisis

Despite the European Central Bank’s intervention today, last week's losses in the Asian and European exchanges continued, prompted by worries that Europe's debt crisis will spread.

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“This is not what the ECB was created for,” argues Ferdinand Fichtner, chief economist at the Berlin-based German Institute for Economic Research (DIW). “Unlike the Fed in America, the European Central Bank’s primary task is to guard price stability. If due to political pressure it becomes one of the main creditors of a potentially insolvent economy, it forfeits its independence, it loses credibility and it gambles with taxpayers’ money.”

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It’s a view shared by investors: The stock markets, which already have to digest the downgrading of the US economy by Standard & Poor's rating agency, were not calmed by the ECB’s move. Britain's FTSE 100 index closed 3.4 percent down on Monday, the German DAX was down 5 percent, and the French CAC lost 4.7 percent.

Tobias Blattner, a former economist at the ECB, was not surprised. “It is a reflection of the weak growth in Europe and North America. The ECB’s interventions will not change anything,” he says.

“The ECB has to realize that it can’t act against the markets,” says Mr. Burghof. “Markets don’t behave irrationally, they aren’t right or wrong – they just reflect the collective knowledge of the investors. So if the ECB buys these government bonds, it simply relieves the markets of risky investments. That did not work in the Greek case, it only helped shifting the burden from private investors to the public.”

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