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:
Somehow 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 sellers."
- 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?