Asian investors and central banks have begun to sell German bonds and pull out of the eurozone altogether for the first time since the debt crisis began, deeming EU leaders incapable of agreeing on any coherent policy.

German BUNDS_01
© AlamyGerman Bunds have already lost their status as Europe's anchor debt. The yields of non-euro Sweden are now 20 basis lower for the first time in modern history. Danish and UK yields are higher but have closed most of the gap over recent months.
Andrew Roberts, rates chief at Royal Bank of Scotland, said Asia's exodus marks a dangerous inflexion point in the unfolding drama. "Japanese and Asian investors are for the first time looking at the euro project and saying 'I don't like what I see at all' and fleeing the whole region."

"The question on everybody's mind in the debt markets is whether it is time to get out Germany. The European Central Bank has a €2 trillion balance sheet and if the eurozone slides into the abyss, Germany is going to be left holding the baby. We are very close to the point where markets take a close look at this, though we are there yet," he said.

Jean-Claude Juncker, Eurogroup chief, fueled the fire by warning that Germany is no longer a sound credit with debt of 82pc of GDP. "I think the level of German debt is worrying. Germany has higher debts than Spain," he said.

"It is comforting to pretend that southerners are lazy and Germans hardworking, but that is not the case," he said, slamming France and Germany for their "disastrous" handling of the crisis.

German Bunds have already lost their status as Europe's anchor debt. The yields of non-euro Sweden are now 20 basis lower for the first time in modern history. Danish and UK yields are higher but have closed most of the gap over recent months.

Bunds clearly still enjoy safe-haven status. Yields are just 1.86pc, but a pattern has begun to emerge over the last week where they no longer strengthen as much with each fresh sell-off in Italy, Spain, or France.

"Bunds are no longer reacting the same way," said Hans Redeker, currency chief at Morgan Stanley. "Until recently, if investors were selling Italian bonds, they would tend to rebalance within the eurozone by buying Bunds. But now they seem to be taking their money out of EMU altogether. US Treasury (TICS) data shows that the money is going into US Treasury bonds as the ultimate safe-haven."

Simon Derrick from the BNY Mellon said flow data show a switch by foreign investors away from Bunds and into German paper of one-year maturity or less. "It is a dramatic shift in behaviour. Although investors continue to see Germany as a safe haven, they certainly do not view it in the same way as they did even six months ago."

Traders say Asians are taking profits on Bunds and pulling out, with signs that even China's central bank is shaving holdings. Mid-east wealth funds have remained firm.

Germany's exposure to the crisis is already huge, and the strains can only get worse as the eurozone tips back into recession. The Bundesbank is so far liable for €465bn in "Target2" payments to the central banks of Club Med and Ireland for bank support. Hans Werner Sinn from the IFO Institute said this is a form of back-door eurobonds that leaves German taxpayers on the hook. "The current system is dangerous. It is prone to a gigantic build-up of external debts," he said.

The Bundesbank is final guarantor behind €180bn in bond purchases by the European Central Bank, a figure still rising fast as the ECB buys Italian and Spanish debt.

On top of this, Germany is liable for its €211bn share of Europe's EFSF rescue fund, as well the original Greek loan package. If the eurozone broke up in acrimony with a clutch of sovereign defaults and a 1930s-style slump - already a "non-negligeable risk" - the losses could push German debt towards 120pc of GDP.

Gary Jenkins from Evolution Securities said EMU contagion to Europe's core has brought the prospect of break-up into focus and raised the question of how much longer Germany can remain a safe-haven. "Any worst case scenario is likely to require at least a substantial recapitalisation of German banks and potentially guaranteeing the debt of euro area partners."

Critics say Germany is falling between two stools. It has backed EMU rescues on a sufficient scale to endanger its own credit-worthiness, without committing the nuclear firepower needed to restore confidence and eliminate default risk in Spain and Italy. It would be hard to devise a more destructive policy.

There is no change in sight yet. Chancellor Angela Merkel repeated on Thursday that Germany would not accept joint EU debt issuance or a bond-buying blitz by the ECB. "If politicians think the ECB can solve the euro's problems, they're trying to convince themselves of something that won't happen," she said.

Yet she offered no other way out of the logjam, and each day Germany is sinking a little deeper into the morass.