EU push to crack down on naked short selling

France and Germany have called for rapid agreement on new EU rules to ban elaborate forms of speculation on national debt and company shares.

In a show of solidarity intended, in part, to compensate for their policy quarrels in other areas, Chancellor Angela Merkel and President Nicolas Sarkozy sent a joint letter to the European Commission yesterday calling for European measures to outlaw "naked" selling of stocks and insurance on sovereign, or national, debt.

Ms Merkel and Mr Sarkozy said: "The return of strong volatility in the markets makes it necessary to question certain financial methods... The commission's work should include the possibility of a Europe-wide ban on naked, short sales of certain shares and securities and certain naked sales of credit default swaps on sovereign bonds."

"Naked" selling is a form of speculation which allows traders to bet on a downward movement in shares and bonds in which they have no direct commercial interest. Such speculation has been blamed by some for the 2008 market crash and recession and the current pressure on European sovereign debt and the euro.

Germany moved last month – to the anger of France and other EU countries, including Britain – to ban "naked" selling in its own markets. France has now, in effect, publicly persuaded Germany to take a more European approach – something that was already under discussion in Brussels.

The European Commission said yesterday that it welcome the sense of "urgency" implied by the Merkel-Sarkozy letter and promised to table formal proposals this summer. EU officials said privately, however, that it was a pity French and German leaders could not also agree on more urgent issues, such as ways of developing an "economic government" for euroland to establish common fiscal approaches and discourage future speculation against the euro.

Sharon Bowles MEP, chairwoman of the European Parliament's economic and monetary affairs committee, warned that a focus on financial instruments, rather than economic issues, could be counter-productive. "This denial of underlying fundamentals makes markets more nervous, not less," she said. "Markets can sniff out excuses and inadequate responses like a pig hunting truffles – [they] will not be satisfied at us giving an aspirin for symptoms, be that ratings or spreads, when the underlying deficit problem is relegated to minor billing."

A planned Sarkozy-Merkel dinner to discuss economic co-ordination issues was cancelled at the last minute on Monday. The meeting will now take place next Monday evening, three days before an EU summit in Brussels which will be dominated by the euro and European sovereign debt crisis.

The biggest market for "naked" trading in Europe is the City of London. The British Government is expected to oppose an outright ban on naked sales but may be prepared to accept some degree of Europe-wide regulation. EU officials admit, in private, that a complete ban on naked trading is unlikely and probably unworkable.

Credit default swaps (CDS) are a form of insurance policy on company or national debt. Traders in naked credit default swaps buy insurance on debt bonds that they do not own, a move that critics such as George Soros have described as akin to selling someone life insurance on someone else, and then giving them a gun.

Although the extent of naked sales of CDS is disputed, they have been alleged to be a contributory factor in the 2008 subprime crash and the current sovereign debt crisis. At one point in 2007, the amounts of CDS – naked and non-naked – issued on American sub-prime mortgages was three times the value of the whole US economy.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive + incentives + uncapped comms: SThree:...

Recruitment Genius: Telesales Executive - OTE £25,000

£13000 - £25000 per annum: Recruitment Genius: Would you like to be part of a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Are you passionate about sale...

Ashdown Group: Graduate Developer (Trainee) - City, London

£25000 per annum + benefits: Ashdown Group: A large financial services company...

Day In a Page

The Silk Roads that trace civilisation: Long before the West rose to power, Asian pathways were connecting peoples and places

The Silk Roads that trace civilisation

Long before the West rose to power, Asian pathways were connecting peoples and places
House of Lords: Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled

The honours that shame Britain

Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled
When it comes to street harassment, we need to talk about race

'When it comes to street harassment, we need to talk about race'

Why are black men living the stereotypes and why are we letting them get away with it?
International Tap Festival: Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic

International Tap Festival comes to the UK

Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic
War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border
Doris Lessing: Acclaimed novelist was kept under MI5 observation for 18 years, newly released papers show

'A subversive brothel keeper and Communist'

Acclaimed novelist Doris Lessing was kept under MI5 observation for 18 years, newly released papers show
Big Blue Live: BBC's Springwatch offshoot swaps back gardens for California's Monterey Bay

BBC heads to the Californian coast

The Big Blue Live crew is preparing for the first of three episodes on Sunday night, filming from boats, planes and an aquarium studio
Austin Bidwell: The Victorian fraudster who shook the Bank of England with the most daring forgery the world had known

Victorian fraudster who shook the Bank of England

Conman Austin Bidwell. was a heartless cad who carried out the most daring forgery the world had known
Car hacking scandal: Security designed to stop thieves hot-wiring almost every modern motor has been cracked

Car hacking scandal

Security designed to stop thieves hot-wiring almost every modern motor has been cracked
10 best placemats

Take your seat: 10 best placemats

Protect your table and dine in style with a bold new accessory
Ashes 2015: Alastair Cook not the only one to be caught in The Oval mindwarp

Cook not the only one to be caught in The Oval mindwarp

Aussie skipper Michael Clarke was lured into believing that what we witnessed at Edgbaston and Trent Bridge would continue in London, says Kevin Garside
Can Rafael Benitez get the best out of Gareth Bale at Real Madrid?

Can Benitez get the best out of Bale?

Back at the club he watched as a boy, the pressure is on Benitez to find a winning blend from Real's multiple talents. As La Liga begins, Pete Jenson asks if it will be enough to stop Barcelona
Athletics World Championships 2015: Beijing witnesses new stage in the Jessica Ennis-Hill and Katarina Johnson-Thompson heptathlon rivalry

Beijing witnesses new stage in the Jess and Kat rivalry

The last time the two British heptathletes competed, Ennis-Hill was on the way to Olympic gold and Johnson-Thompson was just a promising teenager. But a lot has happened in the following three years
Jeremy Corbyn: Joining a shrewd operator desperate for power as he visits the North East

Jeremy Corbyn interview: A shrewd operator desperate for power

His radical anti-austerity agenda has caught the imagination of the left and politically disaffected and set a staid Labour leadership election alight
Isis executes Palmyra antiquities chief: Defender of ancient city's past was killed for protecting its future

Isis executes Palmyra antiquities chief

Robert Fisk on the defender of the ancient city's past who was killed for protecting its future