There's a certain irony here, like when Oedipus spent his whole life tyring to avoid his destiny of killing his father and marrying his mother-he ended up doing both without realizing it. Germany has opposed the idea of a common Eurobond under the premise that it would hurt it and would weaken its credit, and it has resisted the need to do anything more than half measures to save the Euro while demanding self-defeating austerity packages in exchange throughout.
And now just what is has tried so hard to avoid has happened. It's own borrowing costs are now in danger of rising. It had an unusually difficult time yesterday at an auction for its 10 year bonds.
"The debt crisis that began more than two years ago now risks engulfing Germany. The Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments rose to an all-time high today as Germany failed to find buyers for 35 percent of the bonds offered at an auction."
http://www.bloomberg.com/news/2011-11-23/u-s-stock-index-futures-decline-on-germany.html
“It couldn’t have been much worse. We’ve seen failed auctions before, but the scale of failure of this auction is of a different order,” Marc Ostwald, chief economist at Monument Securities, told CNBC.com.
http://www.cnbc.com/id/45414822
As Scott Sumner asked, "What is it 1936 already?" in reference to the year France finally was forced off the gold standard. There has been an analogy many have made between the failed gold standard system that came apart during the Depression and the current Euro system with today's Germany playing the role of France in the 30s-who had remorselessly hoarded gold out of a misplaced national vanity which caused world wide deflation.
It is now felt that if the EU doesn't come up with a meaningful response soon, the Fed may be forced to act. "It’s now quite possible that the Fed may have to move toward NGDP targeting before they would have liked. The Fed cannot allow another collapse of NGDP like we saw in 2009. The cost in terms of banking distress, worsening public finances, international discord and mass unemployment is simply too great to contemplate. I have no doubt that Ben Bernanke of all people understands this."
http://www.themoneyillusion.com/?p=12061#comments
How long will it take Germany to see its folly? Refusing to do anything makes things worse. It can't ignore the problem and chalk it up to the spendthrift South. As for those who speak about Germany leaving the Euro they are dreaming. The reason the talk of a transfer from Germany to the periphery is so hollow is that Germany has benefited disproportionately from the trade balance in the EU. They stand to lose more than anyone if it were to implode.
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