Weak German debt sale stirs recession fears

COMMENTARY The bogeys are inside the perimeter. Tepid investor demand for German government bonds underscores how the sovereign-debt crisis ravaging the eurozone is contaminating the region's stronger economies:

"This is another drip of negative news into the cup," said David Finch, head of cross-sector research at Exane BNP Paribas in Paris. "It's an extension of the contagion we've seen into more of the stable euro-zone countries. It's kind of an acceleration of risk aversion."

It's not the first time Germany has struggled to sell its bonds, which investors still see as a safer bet than those of European countries. But the weak auction highlights the growing fear that Europe is tipping into recession, along with a recognition that economic growth is slowing around the world.

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In another trouble sign for the eurozone on Friday, new data shows that orders for machinery and other industrial equipment in the 17-member bloc are plunging, including in "core" countries such as Germany, France and Italy. That suggests manufacturers are holding off on expansion and saving their money in anticipation of weaker demand. As one market observer told the U.K.'s Daily Telegraph:

"This clearly indicates that we are now entering into a recession," said Peter Vanden Houte, economist at ING. "It is now very clear that this debt crisis has also affected the real economy, and the real economy is now going down."

Actually, that has been clear for some time. The European Commission projects the German economy to grow a meager 0.9 percent next year -- and that assumes a solution to the debt crisis. Growth estimates for France, Italy and Spain are even worse. Indeed, investment bank Barclays Capital (BCS) says that 70 percent of its clients expect a recession in Europe in 2012.

Europe's problems are clearly being driven by the region's spreading debt crisis. Yet a global slump also appears to be hitting Asia and other emerging markets. Economic demand is softening in China, causing factories to rein in production. In India, soaring inflation, the weakening rupee and political turmoil is combining to undermine GDP. Brazil's projected growth in the third quarter? Zero.

That, too, should be no surprise. It's a small world. With commercial and financial markets so tightly linked, there are no safe havens anymore (although goldbugs might disagree). Germans, who remain reluctant to pick up their share of the tab for the eurozone's troubled "peripheral" economies, must realize there is no escape. Nor, if Europe slips, for the U.S., either.