The European Union should outlaw naked short sales of euro-region bonds to damp speculation in the debt of some member countries, a leading member of Chancellor Angela Merkel’s coalition said.
Michael Meister, the ruling Christian Democrats’ senior finance and economy spokesman and parliamentary deputy, said he wants Merkel to make a renewed push for an EU-wide ban after a previous attempt stalled amid U.K. opposition. Germany applied a temporary unilateral ban in May as yields on Greek bonds soared.
Extending the prohibition remains a “central German concern” even as EU-level talks remain stuck over the U.K.’s opposition, Meister in an interview in Berlin today. “I would really like Germany to continue pushing,” he said. The Berlin-based Finance Ministry declined to comment.
The German overnight ban in May drew little support from fellow European governments after the move sent stocks around the world sliding. It also failed to achieve the German coalition’s aim of keeping asset prices from falling and succeeded only in impeding markets, the International Monetary Fund said on Aug. 17.
German regulator BaFin issued the ban without prior announcement on May 18, applying a prohibition in Germany on naked short-sales of euro-area government bonds, credit-default swaps based on the bonds and shares of a number of German banks. The ban expires on March 31.
Credit-default swaps are derivatives that pay the buyer face value if a borrower -- a country or a company -- defaults. In exchange, the swap seller gets the underlying securities or the cash equivalent. Traders in naked credit-default swaps buy insurance on bonds they don’t own.