Berlin’s unilateral action suggested Europe remained unable to form a united front in addressing its debt crisis. It also worried investors by increasing their uncertainty over market regulation in the region.
Chancellor Angela Merkel, describing steps to curb selling of German bank shares and the bonds of euro zone governments, told German lawmakers that European Union leaders had to ensure markets could not “extort” the state.
But Merkel’s decision, which many analysts saw as a political gesture to placate German public opinion after her party lost a regional election this month, appeared to shatter a consensus on cautious regulatory reform which had been building within the EU and across the globe.
“It again suggests that the Germans are no closer to understanding that the markets are not the problem here. The markets are right to be uncertain about the sustainability of the euro zone in its current form,” said Simon Tilford, chief economist at the Center for European Reform.
“What is specific to Germany is a readiness to make unilateral announcements on things that would only be doable if they were done collectively... It’s pretty populist stuff.” Some analysts speculated Germany’s ban might be an attempt to reduce market volatility before further negative developments in the euro zone debt crisis — conceivably even a restructuring of Greek debt.
After the euro zone and the International Monetary Fund devised a 110 billion euro ($135 billion) bailout of Greece this month, governments are likely to do their utmost to avoid a restructuring and give time for Greek austerity steps to work.
But this prospect did little to reassure jittery markets on Monday. “If there is a secret here, it can’t possibly be a positive one,” Rabobank said in a research note.
The euro hit a fresh four-year against the dollar and European stocks slid nearly 3 percent.
The European currency later rebounded in response to a rumor, strongly denied by Athens, that Greece was considering whether to leave the euro zone.
“We categorically deny any thought of leaving the European Union, or the euro zone,” said Greek government spokesman George Petalotis.
But Karl Otto Poehl, former head of Germany’s central bank, was quoted by Der Spiegel on Monday as saying that Greece might eventually have to leave the currency zone.
Poehl told the magazine that Greece obviously had no interest in leaving now, as it was receiving “massive” support, and it could not be forced out. But he said he would not rule out Greece reintroducing the drachma currency in the medium to long term.
Germany banned naked short-selling of shares in its 10 top financial institutions, naked short sales of euro zone government bonds, and naked transactions in credit default swaps (CDS), which are used to insure against debt defaults.
In naked short-selling, a trader sells an instrument short, betting its price will fall, without first borrowing the instrument or ensuring it can be borrowed, as would be done in a conventional short sale. Naked trade in CDS does not hedge an underlying asset.
