“Disastrous” bond sale shakes confidence in Germany
By Stephen Brown and Noah Barkin
Wed Nov 23, 2011 10:52 AM EST
BERLIN (Reuters) – A “disastrous” German bond sale on Wednesday sparked fears that Europe’s debt crisis was even starting to threaten Berlin, with the leaders of the euro zone’s two biggest economies still firmly at odds over a longer-term structural solution.
Investors were also unnerved by reports that Belgium is leaning on France to pay more into emergency support for failed lender Dexia under a €90 billion ($120 billion) rescue deal that had appeared done and dusted.
A special report by Fitch Ratings suggested France had limited room left to absorb shocks to its finances like a new downturn in growth or support for banks without endangering its cherished AAA credit status.
After one of the least successful debt sales by Europe’s powerhouse economy since the launch of the single currency, the euro fell to 1.336 to the dollar and European shares sank to 7-week lows.
There is an error in the Reuters’ story here: they meant to say the exchange rate fell to €1.00 = $1.336.
“The debt crisis is burrowing ever deeper, like a worm, and is now reaching Germany,” one of the more eurosceptic backbenchers in Angela Merkel’s center-right government, Frank Schaeffler of the Free Democrats (FDP) who are the junior coalition partners, told Reuters.
The German debt agency was forced to retain almost half of a sale of 6 billion euros due to a shortage of bids by investors. The result pushed the cost of borrowing over 10 years for the bloc’s paymaster above those for the United States for the first time since October.
Some economists have told us that the United States can go ahead with another Keynesian stimulus program, because our economy needs it and we aren’t in the debt crisis situation in which Greece found itself, and we can economize later, after the economy recovers. But now we’re seeing that investor confidence is being shaken even in Germany, the strongest economy in Europe. The parallels aren’t exact, in that Germany is not the master of its own currency, but they certainly give us reason for caution.