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The Deutschland downer

David Brancaccio Nov 23, 2011

If there was any schadenfreude among Germans about the financial plight of their profligate southern eurozone partners, today’s bond market embarrassment might be Germany’s wake-up call.

The German government went to auction today with some 10-year government bonds but failed to find buyers for 35 percent of them. Yields rose over 2 percent — nowhere near the interest Italians and Greeks have to pay on their debt. Still, if investors aren’t buying bonds from reliable and powerful Germany whose will they buy?

The timing of the soft German bond market coincided with proposals from the European Commission to create so-called “euro bonds.” These would result in Germany backing at least part of the debt other eurozone countries are carrying. And that would be a radical departure from Germany’s concerns about moral hazards and paying other nations’ debt. In fact, Germany has said a clear “nein” to the idea.

Abraham Newman, a political scientist at Georgetown’s School of Foreign Service, has studied Germany for years. He says that the bond market weakness isn’t about Germany’s ability to repay its debt, it’s about the state of the entire eurozone. It’s a signal that it’s time for Europe’s biggest economy to step in and fix this crisis, quick. The contagion is at their door step.

Newman says German Chancellor Angela Merkel has the chance to move her people from austerity to European solidarity. Newman adds it’s a better move for Germany anyway: The austerity measures they’ve championed for their neighbors will only hurt them by reducing the market for their exports. Newman says it’s simply time for Germany to do more for the greater good.

Also on today’s show, J.D. Power and Associates said sales of more fuel-efficient compact cars will outstrip those of mid-size cars by year’s end.

Just five years ago, dealers sold a quarter-million more mid-size vehicles, but as Americans go out looking for better deals, they’re finding compacts with the amenities that used to come with the higher-end gas guzzlers.

The rise of the compact helps carmakers get closer to a goal set by the Obama administration: doubling fleet miles-per-gallon to 54.5 by the year 2025. And that’s helping to boost the Marketplace Daily Pulse today.

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