BERLIN - The European debt crisis is gnawing its way into the heart of the currency union. After recent failures of other euro-zone countries' bonds to interest investors, it was now time for a flop from Germany, which until now has been seen as the euro zone's anchor of stability.

At its auction of 10-year government bonds, the German Finance Agency didn't get enough buyers for its 6 billion euro volume. There were bids for 3.889 billion euros only, which left the federal government sitting on 2.1 billion.

"This is an existential crisis for the euro, nothing less," said Sony Kapoor of the Brussels-based international think tank Re-Define.

Sebastien Galy, an analyst for French bank Société Générale, adds: "The crisis has now hit the last guy left standing."

Uncertainty is so high about where euro-zone policy is heading that nobody wants to put money at the disposal of the German federal government for 10 years for a yield of just under 2%. "The question is whether or not Germany still really is a secure anchor," Galy says. Crucial, financially powerful Asian players particularly are re-thinking their commitment to the euro zone's core countries, something that could become a serious problem for Germany.

Ninety-eight percent of Germany's debt is financed by the financial markets: institutional investors like life insurers, retirement funds and banks. Over half of the German debt is with foreigners, which poses an additional complication since foreign investors won't be swayed by any patriotism factor, or by extension the rescue of the entire euro zone.

Small private investors hold only 10 billion euros of Germany's debt, which works out to 1% (in the 1980s, it was 40%). Because of the sheer size of the debt volume that needs to be financed, it is easier to seek the billions needed on the markets than try and collect it from private investors.

Germany has its own debt pile

In view of the euro zone's present dire situation, market players are taking a more critical stance with regard to Germany as well. The German government has no trouble attracting investment in short-term securities -- but long term investments are meeting with investor caution, prompted by wariness at some of the risks that have been taken and, not least, the historically low interest rate.

Andrew Roberts of the Royal Bank of Scotland compared Germany to "a first-class passenger on the Titanic." Like most euro countries, Germany has a high debt pile – over 80% of GDP, while the maximum allowed in the Maastricht treaties is 60%.

And Germany is by far not the only country seeking to tap the market for billions. France alone, for example, needs around 414 billion euros for 2012. Italy needs 400 billion, Spain 217 billion, Belgium 82 billion. Fortunately, Greece, Ireland and Portugal are no longer on the market, although they too need further billions to survive.

How tense the current situation is can also be observed in the way bonds of other euro countries are faring. The past few days have seen a significant increase in yields for Spanish and Italian bonds, and now Belgium is starting to feel the markets' mistrust: for 10-year bonds, rates shot up to over 5%.

In the midst of this volatile situation on the European financial markets, the European Commission has made a serious proposal today for their long-announced joint euro zone government bonds – a proposal vehemently rejected by Germany. Collectivizing European debt would be revolutionary and would mean shelving one of the basic principles of the currency union, which is that each country is liable only for its own debt on the markets. EU Commission president José Manuel Barroso was calling the euro bonds: "stability bonds."

Stability bonds could be redeemed from any euro zone country. Barroso said in Brussels that the bonds couldn't solve the present problems but would serve as "an example of reinforced governance, of a strong will to live together in the euro area, and a good example of discipline and convergence."

Berlin is not the only one resisting the euro bond proposal. Allies like Finland and the Netherlands, which share German concerns about stability and disciplined spending, also expressed skepticism. Dutch Finance Minister Jan Kees de Jager said: "Euro bonds are not the magic solution to the present crisis. In fact they could even make it worse." He did not exclude a joint euro partner debt instrument in the future, but it would have to be preceded by tighter budgetary discipline and closer monitoring of all partners.

Read the original article in German

photo - frankartculinary