European Union states have failed to agree on how to regulate shortselling of derivative debt insurance contracts that some blamed for worsening the region's sovereign debt crisis, an EU diplomat said. Ambassadors met on Wednesday to thrash out agreement for finance ministers to endorse next Tuesday, but due to splits there will only be a progress report. "There is no basis at this stage for an agreement," the diplomat said.
Italy, Britain and the Netherlands said curbing "naked" selling of credit default swaps linked to sovereign debt could bump up funding costs for governments, the diplomat said. Some policymakers blamed naked shortselling of sovereign CDS contracts, whereby the buyers does not own any of the underlying government bonds being insured against price falls, for worsening the euro zone debt crisis in Greece and elsewhere.