Germany declared war on speculators on Wednesday, wrongfooting European partners who said they were not consulted about an overnight ban on naked short sales of a range of assets that rattled markets. Chancellor Angela Merkel told German lawmakers EU leaders had to ensure markets could not "extort" the state any more and the bloc would introduce its own financial transaction tax or levy if the Group of 20 nations failed to reach a deal in June.
-- Bans some trades in eurozone bonds, CDS, bank shares
-- France, others say won't follow suit, EU not consulted
-- Euro hits another four-year low, before recovering
-- EU Commission calls for European co-ordination
-- Finance Ministers to discuss ban on Friday
Merkel urged EU leaders to speed up financial market supervision and introduce a new tax on them, saying Berlin was ready to act alone on a ban on activities which some leaders blame for deepening the eurozone's debt crisis. Germany's financial regulator said the ban was "due to the extraordinary volatility in government bonds in the eurozone". Massive short-selling could have endangered the stability of the financial system, it said.
"I'll boil it down to its core: The euro is the foundation for growth and prosperity, along with the common market - also for Germany. The euro is in danger," Merkel told parliament. "It seems to me that one ought to at least seek the advice of the other member states concerned by this measure," French Economy Minister Christine Lagarde said, stressing that Paris was not considering banning naked short-selling on European debt.
The EU commissioner for internal markets and financial regulation, Michel Barnier, said in a statement the measures would have been more effective if co-ordinated at European level. Markets were spooked by the lack of co-ordination and fears that Germany's move was in response to a new financial problem. Rabobank said Germany's move "raises the question as to whether the German regulator knows something the market doesn't. If there is a secret here, it can't possibly be a positive one."
EU finance ministers will discuss Germany's ban on Friday, said EU President Herman van Rompuy, who is to chair meetings on toughening EU budget rules and improving economic governance. Merkel's comment on the euro heaped fresh pressure on the single currency, which had already tumbled overnight on the back of Germany's plan to ban naked short-selling of some financial shares, euro government bonds and related transactions in credit default swaps (CDS).
A German Finance Ministry spokesman said the ban would run until March 31, 2011. It was not clear how Germany could enforce it effectively in the debt and CDS markets, which stretch across national borders. German Finance Minister Wolfgang Schaeuble said late on Tuesday Berlin had acted in anticipation of European rules discussed at a meeting of EU finance ministers earlier in the day. But a European Commission spokeswoman confirmed EU finance ministers did not discuss on Tuesday Germany's decision, announced later that day.
In her speech to lawmakers, Merkel demanded tough action against "notorious deficit sinners" in the eurozone, such as loss of voting rights, to create an incentive for budget rigour. "Above all, what's necessary is to develop a process for an orderly state insolvency," she said, though she did not refer to any country by name. The clampdown announced by Europe's biggest economy hit markets hard. The FTSEurofirst 300 was down around 2 percent at 1340 GMT, and most major European indices fell.
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