PARIS — Five months after the United States lost its triple-A credit rating, buyers are still flocking to bonds issued by Washington. But in Europe, where the euro zone crisis and chronic economic woes may soon erode the credit scores of big countries like France, Italy and Spain, investors are far more wary.

The euro fell to its lowest level in more than 15 months Thursday, below $1.28, and France had to pay slightly more than in recent auctions to market its government bonds that mature in 10 years. Those were fresh signs that the calm that fell over Europe at the end of last year may not continue for much longer.

Even as short-term interest rates for Italy fell Thursday in the secondary markets, analysts predicted that investors would probably push up the cost of longer-term borrowing for the Italian and Spanish governments when they seek new loans next week.

“It’s indicative of the sense that things aren’t great in Europe,” said Jacob Funk Kirkegaard, an economist at the Peterson Institute for International Economics in Washington. “The panic that the euro was bound to collapse in the next six months has subsided, but that doesn’t mean that Europe is in any way out of the line of fire.”

Tempered by nearly three years of halting political response to Europe’s crisis, financial markets appear to be paying far closer attention these days to the vigorous efforts by the European Central Bank to prevent the sovereign debt problems of the euro zone from damaging Europe’s weakened banking system.

But with much of Europe heading into a harsher economic climate that is expected to lead to a recession this year, it is not clear whether the E.C.B. can continue to put out all the fires that keep breaking out across the Continent.

What is worse, a new trouble is emerging outside the euro zone, where the E.C.B. does not operate. Hungary, a member of the European Union but not one of the 17 countries in the bloc that uses the euro, was teetering on the brink of a meltdown Thursday amid fears that the center-right government was alienating the International Monetary Fund and the European Commission in Brussels at a time when that the government is looking for their help.

The Hungarian government sold only 35 billion forints, or $140 million, of the 45 billion forints in one-year Treasury bills offered Thursday, with the average yield rising sharply to 9.96 percent.

Beset by unraveling finances and a confrontation between the government and the Hungarian central bank, Budapest’s credit rating was recently cut to “junk” by two ratings agencies. The prime minister, Viktor Orban, recently risked having an I.M.F. rescue line cut off when he introduced laws to strip the central bank of its independence.

Meanwhile, most investors remain focused on the immediate problems facing the euro zone. With private funding drying up, the E.C.B. decided last month to provide Europe’s banks with cheap loans for up to three years. One consequence of that action is that some of the money made available to the banks is likely to end up being used to buy government bonds, a move that should help reduce the governments’ borrowing costs, at least for shorter-term loans.

More recently, the Spanish and Italian governments have also been encouraging the local banks that market their bonds to buy out the offerings at the auction before turning around and re-selling the bonds on international markets. That collaboration, say bankers with knowledge of the operations, is aimed at making the auctions look successful and helping to restore investor confidence in those countries.

But these exercises are hardly a long-term solution to the larger cash squeeze in Europe, which is set to worsen this year.

With their finances squeezed, euro zone governments and banks need to raise an estimated €1.9 trillion, or $2.4 trillion, in new funding in 2012 alone — most of it before April. Many governments need to auction off new bonds, as France did Thursday, to make good on older bonds whose payments are soon due.

Deutsche Bank estimates that euro zone governments have redemptions and coupon payments totaling €486 billion in the first quarter of the year, while banks must redeem about €214 billion.

All that will come at a price.

“You will have competition for very scarce resources between banks and states,” said João Soares, a senior consultant at Bain Co., which recently published a report on the situation. “States have more muscle than the banks, especially if the banks are domiciled in the states that are asking for money,” he said. “So the question is, How is this fight going to play out?”

Article source: http://www.nytimes.com/2012/01/06/business/global/06iht-rates06.html?partner=rss&emc=rss