The German economy, which has been a bastion while its neighbors have buckled one by one under debt, showed signs of strain Wednesday and raised fears across world financial markets that Europe is far from containing its crisis.
An auction of bonds by the German government flopped, generating some of the weakest demand in a decade. And investors who buy German bonds on the open market demanded higher yields, a sign of concern about Germany's finances.
Compounding the problems for Europe, France received another warning that it might be stripped of its top-notch credit rating, and borrowing costs for Italy neared dangerous levels.
German Chancellor Angela Merkel and the head of the European Union clashed openly over one proposed solution to the European crisis _ common bonds issued by all 17 nations that use the euro currency.
A European bond could promote stability in the markets. But Merkel said it would not solve "structural flaws" with the euro, and, in a testy exchange, an EU official said Merkel was trying to cut off the debate before it could even start.
While European leaders bickered and the bond market fretted, investors sold stocks all over the world. In New York, the Dow Jones industrial average lost 236 points, more than 2 percent. Stock markets across Europe finished more than 1 percent lower.
"If Germany can't sell bonds, what is the rest of Europe going to do?" asked Benjamin Reitzes, an analyst at BMO Capital Markets.
The debt crisis in Europe has already forced Greece, Portugal and Ireland to accept international bailouts, and it has threatened Italy and Spain, which have much bigger economies.
But Germany had weathered the storm. It has the largest economy in Europe, with $3.3 trillion of output last year, or about 20 percent of the EU economy. It is vital to any continent-wide solution, both as a source of strength and as a source of cash.
Germany had hoped to raise $8.1 billion by selling bonds, but it sold only $5.9 billion, one of the worst showings since the adoption of the euro in 1999.
German officials cited a record-low offered yield and a nervous market for the auction's failure. "It's an unusual situation, but we don't have to dramatize it now," Finance Minister Wolfgang Schaeuble said on ZDF television.
Investors took it as a warning that the crisis might threaten the rock-solid German economy.
Germany kept the rest of the bonds to auction another day. The agency was careful to say that the result did not represent a "refinancing squeeze" for Germany.
The poor auction piled pressure on German bonds in secondary markets. The yield on benchmark 10-year German bonds climbed by a hefty 0.2 percentage points to 2.08 percent, its highest since Oct. 28.
And for the first time since Oct. 10, investors demanded a higher interest rate to lend to Germany than to the United States, which is wrestling with its own long-term debt problems.
The yield on the 10-year U.S. Treasury was 1.89 percent, down from 1.94 percent a day earlier _ a substantial move in the bond market and a sign investors were seeking the safety of U.S. securities.
Germany's national debt is equal to 81 percent of what its economy produces in a year, high by historical standards. The United States' national debt has pulled roughly even with annual economic output, about $15 trillion.
Like any country with debt, Germany has to tap bond market investors for money. It is also the top contributor to bailouts for other European nations.
One advantage Germany has over almost all other European economies is that its sterling AAA credit rating is not at risk. France, on the other hand, was warned anew by Fitch, a respected rating agency, that it could lose AAA status soon.
Fitch said that a "further intensification" of the debt crisis would result in a much sharper economic downturn in France and the 27-nation European Union. Moody's, another rating agency, delivered a similar warning two days earlier.
In Italy and Spain, the yields on benchmark national bonds pushed close to 7 percent. That is a level considered unsustainable by world investors, and the line that forced other European countries to take bailouts.
The Italian bond yield was at 6.95 percent, up more than a quarter of a percentage point from a day earlier. Spain's yield was 6.61 percent, up 0.03 points.
In another sign of distress in the bond market, investors demanded a higher return to lend to Italy for only two years than for 10 years. The yield on two-year government debt soared half a percentage point to 7.13 percent.
The day brought discord among European leaders over how to get out of the mess.
Jose Manuel Barroso, the head of the European Commission, promoted the introduction of jointly issued European bonds, coupled with stricter budgetary discipline, as the best way out. The bonds "could bring tremendous benefits," he said.
But Merkel, the German chancellor, told lawmakers in Berlin that it was wrong to suggest that a "collectivization of the debt would allow us to overcome the currency union's structural flaws."
Barroso shot back that it was bad form to kill a debate before it started. "We are trying to have a rational, reasonable, serious _ intellectually and politically serious _ debate," Barroso told reporters.
Germany has long opposed European bonds and wants the individual countries of Europe to clean up their own finances so they can eventually borrow at lower rates again.
Proponents argue that the bonds would immediately ease refinancing costs for weaker nations that use the euro. But for Germany, it would most likely lead to higher borrowing costs.
Merkel repeated her call for changes to the EU treaty to guarantee strict enforcement of fiscal discipline. On that point, at least, Merkel and Barroso seemed to agree.
"It is quite clear, as things stand at present, if we want to keep a common currency, we need more integrated governance," Barroso said.
The easiest way for Europe to counter its debt problems would be for its economies to grow, making debt smaller as a share of the overall economy, plus generating more tax revenue for governments.
But that hope was dashed yet again Wednesday. A closely watched survey from the financial information company Markit showed that economic activity in the 17-nation euro group shrank in November for the third month in a row.
The survey found that the deteriorating economic picture is not confined to debt-stressed countries such as Greece, but increasingly spreading to stronger economies such as Germany and France.
The survey suggests the economy of the euro nations as a whole will be 0.6 percent smaller in October, November and December than the three months before. Official figures last week showed that the nations narrowly avoided contraction in the three months before, growing only 0.2 percent over the second quarter.
By contrast, the U.S. economy is growing more than twice as fast. It grew at a 2 percent annual rate, or a 0.5 percent quarterly rate, in July, August and September, according to revised government projections.
Greece, meanwhile, took a step forward in avoiding bankruptcy after the conservative party leader pledged to back the conditions attached to a new financial aid package.
Greece's creditors had insisted that party leaders supporting Greece's interim coalition government commit in writing to backing the country's new euro130 billion, or $174 billion, bailout plan.
Uncertainty about whether the party leader would back those conditions had raised the possibility that Greece would go bankrupt by Christmas.
Casert reported from Brussels. Geir Moulson in Berlin, Greg Keller in Paris and Nicholas Paphitis in Athens contributed to this report.