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Eurozone debt crisis worsens as Germany struggles to sell bonds

November 23, 2011 | 11:08 am

Brandendburg
How could things get worse in Europe? Try this: Now Germany is having trouble finding investors to buy its bonds.

The German treasury could only sell about two-thirds of the $8.1 billion in 10-year bonds it wanted to issue on Wednesday, which sent market yields higher on German debt and across the Eurozone.

It isn’t unheard of for German bond sales to come up short. But at a time like this -- with investors already fleeing bonds of most other Eurozone countries -- the disappointing sale stoked fears that the continent’s debt crisis has reached a dangerous new tipping point.

The market yield on German 10-year bonds soared to a 3 1/2-week high of 2.15% from 1.92% on Tuesday.

Spanish 10-year bond yields rose to a new euro-era high of 6.65% from 6.61% on Tuesday. In France, 10-year bond yields shot up to 3.69% from 3.53%. Belgium was hit particularly hard, with its 10-year yield surging to 5.48% from 5.08% on Tuesday.

Not surprisingly, European stock markets slumped for a third day, sending key indexes closer to their 2 1/2-year lows reached in September. Stocks slid 2.6% in Italy, 2.1% in Spain and 1.4% in Germany.

The euro fell 1.1% to $1.336, its lowest level since Oct. 7.

Wall Street also was dragged lower. The Dow Jones industrial average was off 194 points, or 1.7%, to a six-week low of 11,299 at about 11 a.m. PST. Weak economic data from China also hurt sentiment.

Financial markets have been looking to the European Central Bank to halt the continent’s debt contagion and restore investors’ confidence in buying government bonds. In theory, the ECB could commit to buying unlimited quantities of bonds to try to hold down rates.

But the bank has seemed reluctant to act aggressively, and Germany and France are clashing over how big a role the ECB should play even as the debt debacle has spread from Greece to the heart of Europe.

German Chancellor Angela Merkel continues to oppose a massive bond-buying program by the ECB. She also opposes the idea of Eurozone governments issuing bonds backed by all countries in the currency union, which in effect would make Germany responsible for other nations' debts.

But with German bonds now under pressure, Merkel’s obstinacy risks pushing investor confidence to the point of no return.

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-- Tom Petruno

Photo: The Brandenburg Gate in Berlin, illuminated for the annual "Festival of Lights." Credit: Michael Sohn / Associated Press

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