Germany's auction flop adds to European debt fears
<p>European Commission President Jose Manuel Barroso pauses before speaking during a media conference at EU headquarters in Brussels, on Wednesday, Nov. 23, 2011. The European Commission backed the introduction of jointly issued eurobonds, coupled with stricter budgetary discipline, as the best way out of a debt crisis that's threatening the 17-country eurozone. (AP Photo/Virginia Mayo)</p>
<p>German Chancellor Angela Merkel gestures during her speech of the budget debate at the German Federal Parliament, Bundestag, in Berlin, Germany, Wednesday, Nov. 23, 2011. Germany's chancellor says Greece can only receive its next batch of bailout loans if all parties supporting the new government in Athens commit in writing to the conditions attached to a separate aid package. (AP Photo/Michael Sohn)</p>
BERLIN - The debt crisis struck at the heart of Europe on Wednesday, as Germany fared surprisingly poorly at a bond auction and its leader feuded with top European Union officials over their push for jointly guaranteed debt.
Germany is Europe's biggest, most solid economy and the linchpin for all bailouts of troubled economies in the 17-nation eurozone. Investors' reticence to buy safe German debt at low interest rates speaks volumes about the uncertainty weighing on the continent, where refinancing conditions for governments and banks are rapidly deteriorating.
The flopped German auction of 10-year bonds caused stocks to drop around the world, including in the United States, and sent the euro sliding to a seven-week low against the dollar. By evening, the euro was trading 1.2 percent lower on the day at $1.3357.
"If Germany can't sell bonds, what is the rest of Europe going to do?" asked Benjamin Reitzes, an analyst at BMO Capital Markets.
It was a surprising new twist to a crisis that has already seen smaller eurozone nations Greece, Portugal and Ireland bailed out and is now threatening much-bigger economies like Italy and Spain.
Adding to Europe's woes, France, the eurozone's second-largest economy, again received a warning that it might lose its top-notch Triple-A credit rating.
The German Financial Agency said the $8.1 billion auction met with only 60 percent demand, one of the worst results since the euro's introduction a decade ago.
German officials cited a record-low yield and the "extraordinarily nervous market environment" for the auction's failure, but investors took it as a warning sign that the crisis might even cause trouble to rock-solid Germany.
The bond result also piled the pressure on Germany's bonds in the secondary markets, sending the yield on the country's benchmark ten-year bonds up a hefty 0.20 percentage point to 2.08 percent, its highest level since Oct. 28.
Germany, the world's fourth-largest economy, is seen as the eurozone's most stable pillar and its borrowing rates have been driven down in recent months as investors sought a safe haven from Europe's sprawling debt crisis.
That may partly explain why it suffered what many in the markets are describing as a "failed auction" - investors may be beginning to think twice about whether the returns are appealing. The auction offered only 1.98 percent for investors - the lowest-ever for Germany's ten-year bond. Germany had offered an interest rate of up to 3.25 percent at previous auctions of 10-year-bonds this year.