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Amid eurozone turmoil, Germany borrows money for free

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Francois Lenoir/Reuters

(Read caption) (L.-r.) Italy's Prime Minister Mario Monti, Germany's Chancellor Angela Merkel and France's President Francois Hollande attend an informal EU leaders summit in Brussels May 23. European leaders will try to breathe life into their stricken economies at a summit over dinner on Wednesday, but disagreement over the issue of mutual eurozone bonds and whether they can alleviate two years of debt turmoil will dominate the gathering.

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Germany's central bank borrowed €4.5 billion ($5.7 billion) today. The interest demanded by lenders in return? Nothing, a measure of the panic in the rest of the eurozone.

“That’s a very good result for us,” said a spokesman of Germany’s Federal Finance Agency in Frankfurt, which manages the sales. “It is an impressive illustration of investors’ search for quality.”

But the first time in history the German central bank sold two-year notes to yield zero percent is evidence of how much trouble the rest of Europe is in. The free money for Germany amount to a loss for investors after inflation. Why are bankers willing to lose money on a loan to Germany? Because it isn't Greece. Or Italy. Or Spain.

Germany is not only one of the few growing European economies but its domestic finances are rock solid, unlike its eurozone peers. Spain and Italy are paying  more than six percent to borrow, because investors fear they'll default. European bankers, worried about ending up holding worthless paper, have few good options but the Bundesbank. 

Seven percent is perceived as the threshold beyond which borrowing becomes unsustainable – Greece, Portugal and Ireland all asked the European Union and International Monetary Fund for financial aid after their borrowing costs breached that threshold.

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