Germany starts war with speculators
By Holger Hansen and Andreas Rinke |
May 20, 2010, Thursday
|
Print Edition
Print Edition
GERMANY declared war on speculators yesterday, stunning investors with a ban on naked short selling of certain financial instruments and wrong-footing its European partners who said they were not consulted.
German Chancellor Angela Merkel urged the European Union to speed up financial market supervision and introduce a new tax on them, saying Berlin was ready to act alone on a ban on activities which some leaders blame for much of the eurozone debt crisis.
Speaking to parliament after the ban came into force, Merkel said EU leaders had to ensure markets could not "extort" the state any more and the bloc would introduce its own financial transaction tax or levy if the Group of 20 nations failed to reach a deal in June.
"I'll boil it down to its core: The euro is the foundation for growth and prosperity, along with the common market - also for Germany. The euro is in danger," she said.
Her comment heaped fresh pressure on the euro which had already tumbled on the back of Germany's plan to ban naked short selling of shares in the top 10 German financial institutions, euro government bonds and on related transactions in credit default swaps.
Short selling is a trade that bets a price will fall. Naked short selling is when a trader sells a financial instrument without first borrowing the instrument or ensuring that it can be borrowed, as would be done in a conventional short sale.
German Finance Minister Wolfgang Schaeuble defended the move late on Tuesday, saying Berlin had acted in anticipation of European rules discussed at a meeting of EU finance ministers earlier in the day.
"We said 'We'll go first' because it was precisely that part of the speculation in the recent months with government bonds in the eurozone caused us such concern."
But France said yesterday it was not considering banning naked short selling on European debt and said it had not been consulted.
"It seems to me that one ought to at least seek the advice of the other member states concerned by this measure," Economy Minister Christine Lagarde said.
A European Commission spokeswoman confirmed EU finance ministers did not discuss on Tuesday Germany's decision later that day.
The EU commissioner for internal markets and financial regulation, Michel Barnier, said in a statement: "These measures will be even more efficient if they are coordinated at European level.
Analysts said the German decision could do more harm than good, draining funds away from the eurozone and deepening risk aversion. Some called it a desperate act.
The lack of coordination with other eurozone members underscored how the measures may unsettle, rather than calm, markets.
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