France and Germany call for EU ban on short selling of shares and sovereign bonds

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Written by Ray Clancy

Wednesday, 09 June 2010 08:35

Berlin and Paris have sent a joint letter to the European Commission urging it to consider an European Union wide ban on short selling of shares and sovereign bonds.

German Chancellor Angela Merkel and French President Nicolas Sarkozy told European Commission President Jose Manuel Barroso in the letter that the EU executive needs to accelerate the pace of financial reform.

Brussels ought to accelerate efforts to impose tougher controls for credit default swaps on sovereign bonds and short selling, and present measures in the next few weeks, they said.

‘In particular we think it’s imperative to improve the transparency of short selling positions on shares and bonds, particularly sovereign bonds,’ the letter said.

‘The work of the European Commission should also extend to the possibility of an EU wide ban of naked short selling of all or certain shares and sovereign bonds as well as all or certain naked CDS on sovereign bonds,’ it continued.

Germany moved unilaterally last month to ban naked short selling, in which the seller does not hold the underlying asset, of shares in its biggest banks, Euro government bonds and related credit default swaps.

The letter comes at time when there is talk of strains in relations between the Euro zone’s two biggest economies, sparked by a decision to postpone a scheduled summit between the two leaders on Monday.

Germany and France have been split on the future of the Euro zone, with Berlin seeking to accelerate budgetary consolidation across the bloc to support the single currency and Paris hitherto warier of embarking upon swingeing austerity measures.

France’s top priority is to create an economic government for the Euro zone, with regular summits of the region’s 16 leaders and a dedicated secretariat, to coordinate economic policy and focus on rebalancing the European economy and boosting growth.
On this front, however, Germany is so far unconvinced.

In the joint letter, the two leaders said the Commission should also explore the possibility of harmonising deadlines for the settlement and delivery of securities across the EU.

They added they were confident that talks between EU leaders, the Commission and the European Parliament would soon lead to a directive on alternative investment funds and that the creation of a new European oversight was progressing well.

‘We’re confident that we can count on your absolute commitment in dealing with these matters, which are of crucial importance for upholding financial stability in the European Union,’ the leaders also said in the letter.