Backlash builds against German ban

Backlash builds against German ban
By Ben Hall in Paris
Copyright The Financial Times Limited 2010
Published: May 19 2010 11:09 | Last updated: May 19 2010 11:30
http://www.ft.com/cms/s/0/ebe05a22-6322-11df-99a5-00144feab49a.html


The French government on Wednesday led European reaction against the German government’s move to ban the naked short selling of eurozone sovereign debt instruments.

Christine Lagarde, French finance minister, ruled out a similar move by France and called for an urgent meeting of European securities regulators to discuss the implications of Germany’s unilateral ban.

Sweden and The Netherlands also dismissed the German move, as European equity markets tumbled and the euro hit a fresh four-year low against the dollar overnight before rallying. Yields on US Treasuries approached the lowest levels of the year as investors shunned risky assets.

Ms Lagarde said she wanted the Committee of European Securities Regulators to examine the German move – which took other eurozone governments by surprise – because it could reduce liquidity in bond markets.

The German authorities on Tuesday night said they were imposing a partial ban on naked shorting – selling securities that are not owned or are borrowed – in a clampdown on speculative trading.

In a formal statement of policy to the Bundestag on Wednesday Angela Merkel, the German chancellor, announced that the ban would last indefinitely, or until the European Union agreed a common regulatory approach.

Ms Lagarde said France did not envisage following Germany in imposing a ban on the short-selling of eurozone sovereign debt or sovereign credit default swaps for two reasons: first, there was not much trade in these instruments (beyond French government debt) on French exchanges; second, a ban could reduce liquidity in eurozone sovereign debt markets for governments with economic and fiscal problems.

Government interventions

FT interactive graphic: A comprehensive guide to the scale of fiscal interventions during the financial crisis, including short-selling bans

“I think we should really request the views of those governments affected by this measure. We did not envisage doing this. And for liquidity reasons, it is useful to continue functioning without banning short selling,” she said.

However, France was still enforcing a ban on the short selling of certain financial services stocks imposed in September 2008 amid a bout of speculative selling, Ms Lagarde explained.

Michel Barnier, EU internal market commissioner, said the measures would be more efficient if they were co-ordinated at European level, and backed the idea that finance ministers should discuss the issue on Friday when they are due to meet.

“It is important that member states act together and that we design a European regime to avoid regulatory arbitrage and fragmentation both within the EU and globally,” he said.

French officials said the German ban was introduced without prior consultation with other eurozone governments, yet could adversely affect the debt markets of weaker eurozone economies.

“We want to ensure that the Spanish and Italians agree with this,” said an official.

Consob, Italy’s securities regulator, said on Wednesday it would not follow Germany’s decision to slap a ban on naked short-selling “for now”, but said it was monitoring the situation closely.

Ms Lagarde has in the past called for limits on some debt instruments, such as sovereign credit default swaps. But Paris wants the EU and ultimately the G20 group of economies to co-ordinate any regulatory clampdown.

Additional reporting Quentin Peel in Berlin and Nikki Tait in Brussels