The Return of 'Madame Non': Why Merkel Remains Opposed to Euro Bonds

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Less than 2 percent. That was the interest rate being commanded by German 10-year government Bund bonds on Wednesday. Indeed, there are some analysts who would argue that Berlin's inability to find buyers for its entire bond issue was not necessarily an indication of growing wariness of euro-zone debt. Rather, it showed merely that, with such a low return, they simply weren't all that attractive.

That particular view of the situation was not widely shared, however. Most saw the shortfall as another sign that the euro-zone crisis is frightening investors off. And on Thursday, interest rates on German bonds shot upwards to 2.26 percent. "This is just one auction," Don Smith, an analyst with ICAP, told the Financial Times. "But there is a growing feeling among many in the markets that the crisis is heading one way -- and that is towards the break-up of the euro zone."

Still, Germany has to pay less for its debt than any other country in the euro zone -- and vastly less than the over 6 percent currently being demanded of Italy and Spain. It is a status quo Berlin would like to preserve.

By pooling euro-zone debt, however, euro bonds would likely make it more expensive for Germany to borrow. Some models under consideration would, of course, allow Germany to continue to issue its own sovereign bonds. But it seems certain that the interest rates on those bonds, too, would rise were the country to become a guarantor of pooled euro-zone debt. And with a debt load of over €2.2 trillion, representing 81.2 percent of the country's gross domestic product, a lasting increase in German bond yields would translate to billions more needed to service that debt.

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• Part 1: Why Merkel Remains Opposed to Euro Bonds
• Part 2: Backed into a Political Corner
• Part 3: The Best of the Bond World
• Part 4: Germany's Pesky Constitution
• Part 5: The Cart Before the Horse