Disastrous German Bond Sale Ripples Through Markets

European stocks sank to a 7 week low after a very poor German (NYSEARCA:EWG) bond sale on Wednesday.  The Bundesbank was forced to keep almost half of a sale of 6 billion euros due to a lack of bids by investors.  This pushed the cost of borrowing over 10 years for the bloc’s paymaster above those for the United States for the first time since October.  “It is a complete and utter disaster,” said Marc Ostwald, strategist at Monument Securities in London.

In the meantime, Germany and France (NYSEARCA:EWQ) continue to argue on whether or not the ECB should take bigger actions to ease the pressure on debt markets in Italy (NYSE:EWI), Spain (NYSE:EWP), and other pigs.

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Chancellor Angela Merkel continues to be opposed to adjusting the central bank’s inflation mandate.  In a speech to the Bundestag lower house of parliament, Merkel said, “The European currency union is based, and this was a precondition for the creation of the union, on a central bank that has sole responsibility for monetary policy.  This is its mandate.  It is pursuing this.  And we all need to be very careful about criticizing the European Central bank.  I am firmly convinced that the mandate of the ECB cannot, absolutely cannot, be changed.”

On the other hand, French Fianance Minister Francois Baroin believes that it’s the central bank’s responsibility to sustain activity in the currency bloc.  “The best response to avoid contagion in countries like Spain and Italy is, from the French viewpoint, an intervention (or) the possibility of intervention or announcement of intervention by a lender of last resort, which would be the European Central Bank,” Baroin said.

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