Alarm as debt crisis lands on Germany's doorstep

The sovereign debt crisis showed alarming signs of spreading to the very heart of the eurozone yesterday as Germany failed to sell a full tranche of new debt to the capital markets, forcing the central bank to step in.

The news came as eurozone manufacturers recorded their worst monthly dive in orders in almost three years in September, fuelling fears of recession across the Continent as the debt crisis spreads to the so-called real economy.

Meanwhile, the Irish Finance Minister, Michael Noonan, stressed his determination to push its European partners to agree a plan to ease the country's debt burden, which is on course to hit 118 per cent of GDP in 2013.

The German debt agency had offered €6bn (£5bn) in 10-year Bunds in an auction but attracted bids for only €3.7bn of securities. The Bundesbank was forced to retain €2.4bn of bonds, which the central bank plans to sell over the coming days, an outcome Marc Ostwald at Monument Securities called "a complete and utter disaster".

A spokesman for the German finance agency said the failure to sell the full amount reflected a nervous market but stressed that the "result does not mean any refinancing bottleneck for the budget". But the effective failure of the auction alarmed markets and hit the euro because Germany has been seen as a safe haven by bond investors throughout the crisis. Some suggested that investors were now choosing other countries as refuges for their money.

"It is a strong signal on what the market thinks about German debt. People seeking safety are increasingly turning to Swedish and Norwegian bonds instead," said David Thebault, an analust at Global Equities.

In Dublin, speaking of his determination to bring Ireland's debt under control, Mr Noonan said: "We as a country have borne a disproportionate share of protecting the European banking system. It [proposals that Dublin should be given debt relief] is a piece of negotiation outstanding. We've had some technical discussion [with eurozone partners] at a lower level."