James Moore: Lacklustre Bunds sale must be a wake-up call for Germany and the rest of the eurozone

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The Independent Online

Outlook There has been much (over) excited comment about the eurozone debt crisis in recent weeks, but yesterday came news that could tempt even some of the more phlegmatic analysts to reach for Prozac. Auctions of German Bunds are usually only of interest to anoraks but yesterday's sale – or rather, attempted sale – of a €6bn (£5bn) package of 10-year notes would have been only 65 per cent covered were it not for the intervention of the Bundesbank.

Investors, it seems, are no longer quite so keen on what was once the gold standard sovereign against which all others have been judged.

That gold is showing some ugly tarnish, generated by the troubles of Germany's eurozone partners.

Germany is still a long way from having to pay the sort of interest that Italy, or even France or Belgium, have to for their borrowings.

But interestingly, the yields on Bunds are beginning to rise and fall in line with them.

And the cost of insuring German debt against default has now risen to 107 per cent of the cost of insuring UK gilts.

Not that this is any reason for the UK government to be patting itself on the back.

Gilts might appear attractive right now, but the foundations of the economy underneath them are anything but solid. Forecasts for growth are down and borrowings up.

Even if Britain's sterling-denominated Gilts look like the belles of the ball now, if our European partners fall off a cliff, we will be dragged down with them.

Interestingly, yesterday's Bund hiccup came on the same day that Jose Manuel Barroso, the president of the European Commission, unveiled a consultation on eurozone-wide eurobonds.

Germany is fiercely resisting them because of fears that they will be seen by Europe's "Club Med" as a means of indulging in more of the sort of behaviour that got the continent into this mess in the first place – at the Germans' ultimate expense.

That is understandable. However, it is increasingly becoming clear that the inaction of eurozone leaders – and that very much includes Germany's as well – is threatening to tip the euro off a precipice and plunge a knife into the heart of Germany's relative economic health.

Yesterday's Bund auction should be seen as yet another wake-up call. But it probably won't be.