I didn’t know whether to laugh or cry when I heard the news on Tuesday that the German authorities were to impose a temporary ban on certain types of transactions – known as “naked short-selling” – in eurozone government securities.  Laugh, because it seems more than a coincidence that the announcement was made just before parliament in Berlin was due to open a debate on authorising Germany’s contribution to the €750bn international rescue plan for the eurozone. The ban looks like a piece of raw meat thrown to legislators who labour under the delusion that the eurozone’s debt crisis is all the fault of “speculators” and are eager for revenge.

Cry, because the German announcement underlines how the eurozone’s leaders, after finally appearing to get on top of events with the financial stabilisation plan unveiled on May 10, are once again misjudging the dynamics of the crisis.  To cite another example, Italy’s central bank has just decreed that Italian banks will not be required to adjust their capital ratios if eurozone government bonds in their portfolios fall in value.  What this will mean in terms of the credibility of financial data published by the banks, I hate to think. Read more