A "disastrous" German bond sale on Wednesday sparked fears that Europe's debt crisis was starting to threaten even Berlin, with the leaders of the euro zone's two biggest economies still at odds over a longer-term structural solution.
With contagion spreading, a majority of 20 prominent economists polled by Reuters predicted that the euro zone was unlikely to survive the crisis in its current form, with some envisaging a "core" group that would exclude Greece. 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-euro ($120-billion) rescue deal that had appeared done and dusted, says Reuters.
"If Germany has to pay higher costs for its borrowing, it's obvious it cannot help the entire euro zone," said Makoto Noji, senior strategist at SMBC Nikko Securities in Tokyo.
"If German bond yields keep rising, that could even be a trigger for break-up of the euro."
Tokyo's Nikkei share average fell 1.8 percent to their lowest close since March 2009. Japanese markets were closed for a holiday on Wednesday, when other Asian markets had tumbled. MSCI's broadest index of Asia Pacific shares outside Japan spent much of the trading day in positive territory before running out of steam, informs Reuters.
Banks and investors are reducing holdings of European government bonds as the debt crisis spreads. Kokusai Asset Management Co.'s Global Sovereign Open, Japan's biggest mutual fund, sold its entire holdings of Italian government bonds by Nov. 10, a report from the fund showed. BNP Paribas SA and Commerzbank AG said in earnings reports this month they're unloading sovereign bonds at a loss."If investors do not wish to buy bunds, they do not wish to buy Europe," said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London, reports Bloomberg.
The euro-zone crisis looks like it has reached the core of the core: Germany saw extremely poor demand for a new 10-year bond sale Wednesday, drawing bids of just €3.9 billion for €6 billion of bonds. Germany may still retain its safe-haven crown within the euro-zone, paying just 1.98% for the cash, accoding to Wall Street Journal.