On Tuesday, German authorities announced a ban, starting at midnight, on the naked short-selling of
European government debt. The aim, according to The Telegraph
was to "counter speculators that Berlin believes are trying to
destabilise the region's sovereign bond market." The euro promptly
plummeted, while The Telegraph's Harry Wilson reports that "traders are
predicting chaos" as the ban goes through its first full day. This
comes only a week after Europe settled its bailout plan
for sovereign debt, and this new instability has observers spooked.
What happened, what was Germany thinking, and is there any chance this
- Germans Taking 'Political Incompetence to an Art Form,' decides Business Insider's Joe Weisenthal.
French finance minister Christine Lagarde recently came out against the
German move, and "suddenly you have one of Europe's two most important
players actively denouncing the other one's dumb behavior," writes
Weisenthal. He thinks that "right now, all of Europe could probably
find a reason to be angry at Germany. It was their intransigence that
caused the Greek crisis to go on so long, and it's Germany that's
making waves at a time when the market could use calm." Nor is he wowed by German attempts to try to get others to join the naked shorting ban:
we'd be surprised if the UK succumbed to this nonsense, given its
desire to keep its place as a pre-eminent financial city. But stupider
things have been done.
- Agreed: Did They Do Their Homework? "Note to Germany," reads Michael Corkery's
headline at The Wall Street Journal: "short selling bans don't work."
He reminds readers that "several academic studies ... have raised
questions about whether the temporary shorting-selling ban on certain
U.S. stocks at the height of the financial crisis in 2008 may have done
more harm than good." He also adds that "it sure must send a troubling
message to investors that even after $1.7 trillion in global
bank-rescue funds, European banks still need protection from short
- Why the Euro Is Sinking Tyler Durden
at Zero Hedge explains investors' impulse to sell the currency: "Such a
response makes sense as when faced with the inability to manage risk in
debt, stock or CDS markets, participants sell what they can. And that
means the Euro." He decides the German move, ultimately, has
"increase[d] the risk of failure in the entirety of the liquidity
support program" that has just taken shape.
- Is Merkel Hiding Something? "Merkel protests too much," comments 24/7 Wall St.'s Douglas McIntyre, meaning he's skeptical of her supposed enthusiasm to combat the investors shorting European sovereign debt with this ban:
The real reasons behind Merkel actions may be more complex
and sinister. There is a great deal of evidence that some of Germany's
large banks have bet against both the euro and sovereign debt in the
weakest nations in the region. If so, these banks, like other
speculators, probably made billions of dollars on such deals.
Merkel may have to deal with the accusation, probably an accurate one,
that Germany allowed its banks to take sides against the euro as the
government helped drive its value down. How would it look if Germany
then left the Eurozone and its banks became, under a set of
circumstances helped by Merkel, rich in the process?
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