Brussels targets derivatives to help euro
José Manuel Barroso says European commission considering ban on credit default swaps to ease market pressure on Greece
Ian Traynor in Brussels
guardian.co.uk, Tuesday 9 March 2010 17.51 GMT
The European commission announced moves today to shore up the euro and ward off market pressure on Greece by considering a ban on complex derivatives allegedly being used to undermine the single currency.
The draconian move suggested by José Manuel Barroso, commission president, follows a joint campaign by the German chancellor, Angela Merkel, and the French president, Nicolas Sarkozy, for a prompt clampdown on credit default swaps (CDS).
George Papandreou, the embattled Greek prime minister, who has been arguing in Berlin, Paris, and Luxembourg for the past several days that unbridled speculation on the markets is driving his country towards national insolvency and sovereign debt default, was expected to lobby the White House last night to join the crackdown on the markets.
Papandreou was due to see Barack Obama in Washington last night following meetings in Berlin and Paris with Merkel and Sarkozy respectively.
In concerted criticism of the speculative attacks on the euro, Merkel was also joined by Jean-Claude Juncker, the Luxembourg leader and head of the eurozone of 16 countries using the single currency, in demanding swift action to rein in the markets.
Barroso said today it was "not justified" to buy CDSs "by unseen interventions on a risk, on a purely speculative basis ... The commission will examine closely the relevance of banning purely speculative naked sales on credit default swaps of sovereign debt."
The possible ban on CDSs - a form of insurance against the risk of default - would also be raised at the G20.
Following talks with Juncker in Luxembourg on the Greek crisis, the threat to the euro, and the talk across the EU of establishing a European Monetary Fund to bail out distressed eurozone countries, Merkel reserved her strongest criticism for the markets.
"We must discourage financial market speculation," she said. "A fast implementation in the area of credit default swaps must follow. We know this will be done on the American side too, but we think that a step ahead from our side, from the European Union, would help."
The commission announcement came in response to pressure from Merkel, Sarkozy, Juncker and Papandreou, who threatened to take national action against the markets if Brussels balked.
The European crackdown on CDS trading appeared to be the central result of Papandreou's tour of key capitals, a strong political signal aimed at winning time for the Greeks. The apparent determination to regulate the traders as well as the concerted political signals sent today were aimed at relieving the pressure on Greece whose debt and deficit crisis could spiral out of control and undermine the euro.
For the first time Barroso said the eurozone countries were preparing some form of bailout for the Greeks which, nonetheless, would not breach the no-bailout clause in the single currency rulebook.
"The commission has been actively working with euro-area member states to design a mechanism which Greece could use in case of need," he said. "It would include stringent conditionality. The commission is ready to propose a European framework for co-ordinated assistance, which would require the support of euro-area member states."
Market speculation against the euro was "an aggravating factor" in the Greek crisis, Barroso added, but conceded that Greece's problems "were not caused by speculation on the financial markets".
Despite the criticism of the markets and the CDS crackdown led by Merkel, Germany's financial services regulator said it had seen no evidence of speculation against Greek bonds and no growth in the use in effect of CDSs betting on the chances of a Greek default.
Following the weekend announcement from Wolfgang Schäuble, the German finance minister, that he favoured setting up a European Monetary Fund to safeguard the euro in future Greece-style crises, it was clear today that any such move will be slow and complex, tiptoeing gingerly through a legal minefield.
While supporting the idea, Juncker said there were "a thousand questions" to be answered. The Germans and the French are certain to scrap over the rules and functions of an EMF. Merkel reiterated that such a fund would mean reopening the Lisbon treaty, a nightmare scenario that could run into trouble with Germany's supreme court.
While the fund would work for the single-currency countries, changing the Lisbon treaty would require the assent of all 27 EU countries. Gordon Brown has already pledged no more changes to European treaties for at least a decade, while a Conservative government in the UK would face major dilemmas over how to respond to changes in the Lisbon treaty.
Ian Traynor in Brussels
guardian.co.uk, Tuesday 9 March 2010 17.51 GMT
The European commission announced moves today to shore up the euro and ward off market pressure on Greece by considering a ban on complex derivatives allegedly being used to undermine the single currency.
The draconian move suggested by José Manuel Barroso, commission president, follows a joint campaign by the German chancellor, Angela Merkel, and the French president, Nicolas Sarkozy, for a prompt clampdown on credit default swaps (CDS).
George Papandreou, the embattled Greek prime minister, who has been arguing in Berlin, Paris, and Luxembourg for the past several days that unbridled speculation on the markets is driving his country towards national insolvency and sovereign debt default, was expected to lobby the White House last night to join the crackdown on the markets.
Papandreou was due to see Barack Obama in Washington last night following meetings in Berlin and Paris with Merkel and Sarkozy respectively.
In concerted criticism of the speculative attacks on the euro, Merkel was also joined by Jean-Claude Juncker, the Luxembourg leader and head of the eurozone of 16 countries using the single currency, in demanding swift action to rein in the markets.
Barroso said today it was "not justified" to buy CDSs "by unseen interventions on a risk, on a purely speculative basis ... The commission will examine closely the relevance of banning purely speculative naked sales on credit default swaps of sovereign debt."
The possible ban on CDSs - a form of insurance against the risk of default - would also be raised at the G20.
Following talks with Juncker in Luxembourg on the Greek crisis, the threat to the euro, and the talk across the EU of establishing a European Monetary Fund to bail out distressed eurozone countries, Merkel reserved her strongest criticism for the markets.
"We must discourage financial market speculation," she said. "A fast implementation in the area of credit default swaps must follow. We know this will be done on the American side too, but we think that a step ahead from our side, from the European Union, would help."
The commission announcement came in response to pressure from Merkel, Sarkozy, Juncker and Papandreou, who threatened to take national action against the markets if Brussels balked.
The European crackdown on CDS trading appeared to be the central result of Papandreou's tour of key capitals, a strong political signal aimed at winning time for the Greeks. The apparent determination to regulate the traders as well as the concerted political signals sent today were aimed at relieving the pressure on Greece whose debt and deficit crisis could spiral out of control and undermine the euro.
For the first time Barroso said the eurozone countries were preparing some form of bailout for the Greeks which, nonetheless, would not breach the no-bailout clause in the single currency rulebook.
"The commission has been actively working with euro-area member states to design a mechanism which Greece could use in case of need," he said. "It would include stringent conditionality. The commission is ready to propose a European framework for co-ordinated assistance, which would require the support of euro-area member states."
Market speculation against the euro was "an aggravating factor" in the Greek crisis, Barroso added, but conceded that Greece's problems "were not caused by speculation on the financial markets".
Despite the criticism of the markets and the CDS crackdown led by Merkel, Germany's financial services regulator said it had seen no evidence of speculation against Greek bonds and no growth in the use in effect of CDSs betting on the chances of a Greek default.
Following the weekend announcement from Wolfgang Schäuble, the German finance minister, that he favoured setting up a European Monetary Fund to safeguard the euro in future Greece-style crises, it was clear today that any such move will be slow and complex, tiptoeing gingerly through a legal minefield.
While supporting the idea, Juncker said there were "a thousand questions" to be answered. The Germans and the French are certain to scrap over the rules and functions of an EMF. Merkel reiterated that such a fund would mean reopening the Lisbon treaty, a nightmare scenario that could run into trouble with Germany's supreme court.
While the fund would work for the single-currency countries, changing the Lisbon treaty would require the assent of all 27 EU countries. Gordon Brown has already pledged no more changes to European treaties for at least a decade, while a Conservative government in the UK would face major dilemmas over how to respond to changes in the Lisbon treaty.