GERMAN CHANCELLOR Angela Merkel was fending off international criticism last night after a surprise German ban on speculative financial dealing hit stock markets and sent the euro to a four-year low.
The unilateral move by Germany’s financial regulator yesterday banned speculative “short sales” of shares in 10 leading German companies including the country’s top financial institution, Deutsche Bank.
Short sales involve investors betting that the price of shares or other assets such as bonds will fall.
Germany has also outlawed short sales of euro zone sovereign bonds and of credit default swaps, a type of insurance based on the bonds.
Analysts and EU neighbours, caught off-guard by the move, were annoyed by the ban, but Dr Merkel justified it as a timely corrective to a “lack of market rules and limits”.
“Financial markets driven purely by the profit motive are destructive and lead to an existential threat to financial stability in Europe and even the world,” said Dr Merkel. “The market alone won’t correct these mistakes.”
She warned the euro was in danger and was facing an “existential test”. “If we cannot deflect this danger, the consequences for Europe and beyond cannot be predicted,” she said.
Markets fell across Europe in response to the initiative. In Dublin, the Iseq index closed more than 4 per cent lower, while the FTSE 100 market in London was down by 2.8 per cent. Markets in Frankfurt and Paris were similarly punished.
One Dublin trader described yesterday’s session as a “buyers’ strike” with virtually no investors willing to buy stock in the current uncertain climate. Only a fraction of Irish stocks escaped substantial falls.
The euro hit a four-year low against the dollar of $1.2212 before rebounding to $1.2247 as European markets were closing.
France has banned some short selling since 2008, but said yesterday it has no plans to follow the most controversial leg of Germany’s ban: speculation on sovereign debt.
Likewise, the office of the Financial Regulator said that Ireland’s position was unchanged since September 2008 when the practice of short-selling in relation to Irish publicly-quoted banks was banned. The Irish ban does not apply to other assets and a spokeswoman for the regulator said there were no plans to change the current position.
EU economic and monetary affairs commissioner Olli Rehn said he “could see the reasons” for Germany’s decision but called for an increase in the pace of European financial market regulatory reforms.
Berlin’s move comes ahead of a crucial vote tomorrow for Germany’s contribution to a €750 billion fund to rescue the euro zone. After weeks of criticism from around Europe, Dr Merkel faces growing criticism at home that she has not been decisive enough in her handling of the crisis.
After beginning in the opposition benches, the criticism has now spread into her own government ranks, endangering the Bundestag vote.
Taoiseach Brian Cowen maintained yesterday that the Irish economy had reached a turning point, but he spoke of the challenge he had faced in communicating the scale of the problem to the public.
He told the National Treasury Management Agency’s Government Borrower’s Forum at Dublin Castle that the current extraordinary times would leave a profound mark on the future shape of the global economy.
“I have certainly never experienced the rapidity of events, the necessity for rapid decision-making, and the impossibility of avoiding risk in managing the crisis to ensure a country is not overwhelmed by it,” said Mr Cowen.
“It has also been very challenging, in the face of understandable anger and worry, to communicate with the public about what are complex issues that must be addressed on an ongoing basis,” he said.
The Taoiseach said that an economic policy was not much use if it did not gain the acceptance of the public and failed to result in the decisions necessary to enable recovery.
