short selling ban

Conspiracy theorists must be having a field day. German regulators have banned naked short selling on eurozone sovereign debt, sovereign CDS and shares in a handful of private companies. Germany has wanted action on naked short selling for months, and now they have acted unilaterally. But as the Economist points out: “It has made the markets think that the Germans know something bad that isn’t public.”

So let’s run with that theory. Perhaps Italians know something bad too. They have just released banks from the obligation to mark-to-market their losses on eurozone government bonds held in available-for-sale portfolios. The move is apparently designed to “safeguard capital ratios“. Isn’t that responsibility meant to lie with the banks, not the central bank? And can sovereign bonds credibly be excluded? They cost real money, and make or lose real money, just like other bonds. 

Ralph Atkins

Germans certainly have their own style at a time of crisis. As Angela Merkel’s government faced a backlash over its attempts to control speculators, Karl Otto Pöhl, the former Bundesbank president was offering a hardline view on the eurozone’s failings. The ECB was breaking the rules by buying government bonds, Mr Pöhl, 80, told Der Spiegel. The basis on which the eurozone operated had “changed fundementally” and the euro was likely to fall further. The Greece bailout was “about rescuing banks and rich Greeks,” he added for good measure.

His comments certainly highlighted German anger at the eurozone rescue package launched last week – and the pressure Axel Weber, the current Bundesbank president, faces from his stern predecessors. But that will hardly help calm financial market fears that EU policymakers’ hearts are not really into sorting out the mess.