Markets in chaos after Merkel ban

MARKETS worldwide were plunged into turmoil yesterday as Germany’s panic move to ban naked shorting triggered fears of a fresh financial meltdown.

The FTSE 100 crashed by almost three per cent to 5,158.08, mirrored by similar falls in Paris with the Cac 40 dropping 2.9 per cent to 3,511.67, and Germany’s Dax plunging 2.7 per cent to 5,988.67. In Wall Street, the Dow Jones Industrial Average shed 0.6 per cent to 10,444.37.

Earlier, the euro hit a fresh four-year low against the dollar, plummeting to $1.214 before recovering to $1.239.

German chancellor Angela Merkel insisted that the ban – which prevents a trader selling any Eurozone sovereign bonds, credit default swaps and shares in its ten top financial institutions that they do not own or are borrowed – was necessary to stabilise markets, but the measure had the opposite effect. Yields on 10-year Greek bonds rose 37 basis points to 7.918 per cent, and Markit’s iTraxx Crossover index – measuring risk in mid-level corporate bonds – jumped 57 basis points to 586.

“As a German citizen, I wish to apologise for the stupidity of my government,” said Hans Redeker, currency chief at BNP Paribas. Redeker warned the ban would simply scare global investors away from the Eurozone altogether.