Calls in Germany for bolder action to stem the euro zone's debt crisis grew on Thursday after a botched bond auction that some commentators described as a "wake-up call" for Chancellor Angela Merkel's government. German newspapers uniformly interpreted the country's worst debt sale since the launch of the euro in 1999 as evidence the crisis had finally arrived in the "hard core" of the single-currency bloc. Some said this should force Merkel to reconsider her approach. So far her government has loudly rejected the two solutions that many experts feel may be needed to hold the 17-nation euro zone together -- allowing the European Central Bank to act as a lender of last resort and issuing joint euro zone bonds.
"The buyer's strike at the German bond auction is a first, quiet wake-up call from investors, who are telling the government to take action and no longer play for time. One has to hope that it is heard." said Andrea Cuennen in a commentary for leading business daily Handelsblatt. Cuennen said opponents of euro bonds and bolder ECB action were likely to use the poor bond sale to justify their stance, but argued this would be the wrong conclusion to draw from it. "In the short-term the ECB is the only lender that can keep euro zone bond yields down. And in the longer-term, there is no way around a fiscal union that is at least partly financed by euro bonds."
The Financial Times Deutschland (FTD), in a riff on comments by a leading Merkel ally last week that all of Europe was now adopting German fiscal discipline, said "The crisis speaks German now" next to a picture of a German eagle crashing into the ground. Conservative daily Die Welt noted that while Merkel was publicly denouncing the idea of euro bonds in a speech to the German parliament on Wednesday, the Dutch finance minister appeared to open the door to them if weak countries on Europe's periphery agreed to strict oversight of their budget policy. Both the FTD and top-selling tabloid Bild reported on Thursday that euro bonds were no longer seen as taboo by some members of the German government, despite repeated public denials. SAFE HAVEN RISK The bond sale was not the first in which Germany failed to raise as much money as hoped. In fact it was the ninth auction this year to fall short of target.
The difference was that previous shortfalls were capped at around 500 million euros. On Wednesday, it was well over 2 billion. German bonds traded in the open market slumped on the result, which some analysts described as a disaster. They continued their fall on Thursday, dipping to their lowest level in a month, in a sign Germany was no longer seen as a rock-solid "safe haven" in a bloc with ever more problem countries. Merkel's government has made two main arguments in opposing joint euro bonds.
The first is that they would lead to higher borrowing costs for Germany - a phenomenon that Wednesday's bond sale suggests is already taking hold. The second is that they would remove, in one fell swoop, the incentive for countries like Greece and Italy to keep their finances in order as they would no longer have to fear a spike in rates. Were Germany to succeed in its push to have tighter budget oversight enshrined in the European Union's Lisbon Treaty, then these concerns might be allayed. But that is likely to take months or years, time the euro zone may not be able to afford.