Germany goes to war alone, bans naked short selling

GERMANY declared war on speculators on Wednesday, wrongfooting European partners who said they were not consulted about an overnight ban on naked short sales of a range of assets that rattled markets.
Chancellor Angela Merkel told German lawmakers 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.
Merkel urged EU leaders 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 deepening the euro zone’s debt crisis.
“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,” Merkel told parliament.
But Germany’s European partners were blindsided by the ban. France and senior EU officials said they had not been consulted and called for concerted, not unilateral, action.
“It seems to me that one ought to at least seek the advice of the other member states concerned by this measure,” French Economy Minister Christine Lagarde said, stressing that Paris was not considering banning naked short-selling on European debt. The EU commissioner for internal markets and financial regulation, Michel Barnier, said in a statement the measures would have been more effective if coordinated at European level.
“It is important that member states act together and that we design a European regime to avoid regulatory arbitrage and fragmentation both with the EU and globally,” he said.
Markets were spooked by the lack of coordination and fears that Germany’s move was in response to a new financial problem.
Some analysts suggested Germany’s ban might be an attempt to get markets under control before further negative developments in the euro zone debt crisis — conceivably even a restructuring of Greek debt, which officials have so far ruled out.
Rabobank said Germany’s move “raises the question as to whether the German regulator knows something the market doesn’t. If there is a secret here, it can’t possibly be a positive one.”
EU TALKS ON FRIDAY
EU finance ministers will discuss Germany’s ban on Friday, said EU President Herman van Rompuy, who is to chair meetings on toughening EU budget rules and improving economic governance.
Merkel’s comment on the euro heaped fresh pressure on the single currency, which had already tumbled overnight on the back of Germany’s plan to ban naked short-selling of some financial shares, euro government bonds and related transactions in credit default swaps. In the United States, where the bulk of credit default swap trading is done, US. Treasury Secretary Tim Geithner told CNBC television the history of trading restrictions was “not good”. Credit default swaps insure against the risk of debt defaults, short selling is a trade that bets a price will fall.
Naked short selling involves selling a financial instrument without first borrowing the instrument or ensuring that it can be borrowed, as would be done in a conventional short sale. A German Finance Ministry spokesman said the ban would run until March 31, 2011. — Reuters