Sovereigns face a financing crunch

THE START OF the year saw the usual spectacle of high-grade issuers jostling for position in the new-issue pipeline, mostly meeting with a decent reception. But the failure of a 10-year Bund auction to be fully covered was greeted with general dismay. If the benchmark borrower for the eurozone can suffer a failed auction, what hope is there for the rest of its members?

It is a question that is becoming more frequently asked of sovereign and central bank policymakers. In February, outspoken German finance minister Peer Steinbrück, speaking in a political party setting, raised the prospect of weaker countries within the single-currency system being helped if they had problems financing their deficits. Of course such an outcome is best avoided: Lorenzo Bini Smaghi will not be the last executive board member of the European Central Bank to warn eurozone nations of the dangers of ballooning budgets, as he did...