Instance creation fails with 'Cannot find suitable CPU' on Debian 7

KVM by default does not work (even though vmx/smx is enabled for CPUs) – instance creation fails with “Cannot find suitable CPU”.

Solution:

• In /etc/libvirtd/qemu.conf:

security_driver = "none"

• remove file /var/cache/libvirt/qemu/capabilities and restart host (libvirtd restart does not suffice)
• After restart check capabilities with:

virsh capabilities