EU urged to ban shorting

GERMANY and France called for European Union-wide curbs on naked short-selling yesterday, a month after Berlin plunged financial markets into chaos with a unilateral ban.

In a joint letter to European Commission president José Manuel Barroso, Chancellor Angela Merkel and President Nicolas Sarkozy said resurgent volatility raised “legitimate questions” around credit default swaps and short-selling.

They said: “In the face of recent developments, we believe the EC should urgently accelerate efforts to achieve stricter controls on the markets for CDS on bonds and short-selling, and put forward all possible measures in this area even before the July meeting of the Economic and Financial Affairs Council.”

Politicians are desperate to get a grip on Eurozone markets after their €750bn (£620bn) stability package failed to entirely alleviate concerns around Greece, Spain and Portugal. The EC, which has promised to bring in legislation by October, welcomed the communiqué and said “concrete proposals” on short-selling would be published in the summer.

But any indication of hurry will be greeted with alarm by market participants, who criticised Germany for undermining confidence with its surprise ban on naked shorting and lashed out at Brussels for its hastily-assembled hedge funds directive.

Elisabeth Afseth of Evolution Securities said: “The risk you have is the same we had with the overnight ban coming out of Germany. Investors will price in regulatory risk and push yields up further.”

The continent’s woes will be the focus of a summit of the 27 EU leaders on 17 June.