Merkel, Sarkozy seeking faster crackdown on high-risk dealing

09:16, June 10, 2010      

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France and Germany Wednesday called for a European ban on certain high-risk market dealings such as naked short selling in a joint appeal that came amid tensions over the eurozone debt crises.

French President Nicolas Sarkozy and German Chancellor Angela Merkel wrote jointly to EU Commission President Jose Manuel Barroso and urged quick action to regulate certain transactions due to "turbulence" on the markets.

"The commission's work should include a possible ban at European level on naked short selling of all or certain shares and bonds and of certain credit default swaps on sovereign se-curities," they wrote in the letter.

Credit default swaps are instruments offering insurance against the risk that a government might be unable to honor payments due on debt it has issued to investors to cover its overspending.

"Naked" short selling is a particularly aggressive technique of selling assets for a future date without having any immediate access to it, even through borrowing. Traders seek to profit from a future drop in prices.

A sudden, unilateral decision by Germany to ban some forms of "naked" short selling caused consternation in European government debt markets and helped make big deficits and debt in the eurozone a hot issue.

"Strong measures have already come into force," Merkel and Sarkozy wrote in the letter dated Tuesday but released Wednesday.

"We believe there is an urgent need for the (European) Commission to speed up its work concerning the strengthened framework of the market" governing transactions such as the credit default swaps and short selling.

"We are in the final phase of completing our proposals" on derivatives and short selling, said a spokeswoman for European Commission chief Jose Manuel Barroso.

"In the coming days we will proceed with focused consultations so as to finalize the texts of our proposals" in these areas, the spokeswoman said.

"When Paris and Berlin cannot agree on issues like banning short selling, they call on Brussels to act. It is surprising the letter does not mention economic agreement, another key subject that countries can't agree on," said one EU official.

French Economy Minister Christine Lagarde said last week that France has no plans to copy Germany's ban on short selling of government debt.

There have also been mounting disagreements between the two leaders over economic policy, including frequent clashes over multi-billion-dollar bailout packages for Greece and then the wider eurozone.

Source: Global Times


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