Failed German bond adds to fears over European debt crisis

A "disastrous" German bond sale yesterday led to fears that the debt crisis in Europe would not spare Berlin, even as the  leaders of the euro zone's two biggest economies - Germany and France - continued to haggle over a longer-term structural solution.

With spilling over to fresh territories, a majority of 20 prominent economists polled by Reuters cast doubts over the euro zone prospects to survive the crisis in its current form, thinking in terms of a "core" group that excludes Greece.

 Reports that Belgium was leaning on France also spooked investors who refused to shell out more into emergency support for failed lender Dexia under a 90-billion-euro ($120-billion) rescue deal that seemed to have been wrapped up.   According to a special report by Fitch Ratings, France was left with little room to absorb shocks to its finances, such as a new downturn in growth or support for banks, without endangering its triple-A credit status.

According to Frank Shaeffler, of the junior coalition partner Free Democarats who spoke to Retuers, the debt crisis was burrowing ever deeper, like a worm, and was now reaching Germany.Merkel, Sarkozy and new Italian prime minister Mario Monti were scheduled to meet in the French city of Strasbourg today.

The discussions were expected to focus on the reforms planned by EU commissioner Monti at a meeting they hoped would allow Italy to emerge out of the shadow of scandal-plagued former Italian prime minister Silvio Berlusconi, who resigned this month.

In what is seen as an indication of the depth of crisis, the German debt agency failed to find any buyers for almost half a bond sale of 6 billion euros. This sent the cost of borrowing over 10 years for the bloc's paymaster soaring over that of the US for the first time since October.