Panicking investors now pay Germany to take their cash

Tim Wallace
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● Safe haven reward for Germans

● Merkel wants euro budget deal

● Sarkozy to forge ahead on FTT

● Cameron urges transfer union

YIELDS at a six-month German debt auction became negative yesterday, as investors were so desperate to lend to Europe’s safest state that they paid the government to take their cash.

Germany sold €3.9bn (£3.22bn) in six month bills for an average yield of minus 0.0122 per cent. A similar issue last month saw 0.001 per cent yields.

German Chancellor Angela Merkel and French President Nicolas Sarkozy met in Berlin in an effort to hammer out a common position on resolving the crisis that is driving investors away from nations like Italy and Spain.

Merkel expressed confidence that a new treaty, designed to force governments to run only small budget deficits in future, will be finalised by the end of this month.

Merkel urged swift action on the Greek bond haircut – a key step if the country is to avoid a formal default on its debts and possible euro exit.

“The second Greek aid package including this restructuring must be in place quickly. Otherwise it won't be possible to pay out the next tranche for Greece,” she announced.

Both leaders support the introduction of a financial transactions tax, with Sarkozy even suggesting France may implement it alone to encourage other countries to follow suit.

“Someone has to be first to jump in the water,” said French PM François Fillon.

David Cameron – who firmly opposes such a tax – claimed the Eurozone’s problems lie in Germany’s competitiveness relative to the southern states.

Only “massive transfers of wealth from one part of Europe to another” will hold the union together, he said.

Meanwhile, Hungary saw borrowing costs hit 7.77 per cent on 40bn forints (£1.05bn) of six-month debt – the highest since June 2009.