Brussels, 09/06/2010 (Agence Europe) -Chancellor of Germany Angela Merkel, and President of France Nicolas Sarkozy are urging the European Commission to speed up its work on new EU rules on short-selling and naked credit default swaps (CDS) to hedge against the risk of a country defaulting on its sovereign debt. In a joint letter to the Commission published on Tuesday 8 June, they write: “Considering recent market developments, we believe there is an urgent need for the Commission to speed up its work to establish stricter control of markets in sovereign CDS and of short-selling and to present all possible areas of action in these areas before the July ECOFIN meeting. In particular, we believe that it is indispensible to reinforce the transparency of short positions on equities and bonds, especially sovereign bonds. The Commission's work should encompass the possibility of an EU-wide prohibition of naked short-selling of all or certain shares and sovereign bonds as well as all or certain naked sovereign CDS and its condition, notably taking into account the role of market-makers”.
Interpreting the letter as an encouragement to develop an EU approach to the issue rather than as a criticism of the pace of progress, the European Commission is planning to submit tangible proposals during the summer. It will open two consultation exercises over the next few days, one on derivatives and the other on short-selling. Both consultations are expected to last a month. It is unlikely that new legislation will be unveiled before September 2010. The Commission is pleased that France and Germany now sing from the same hymn sheet on this issue, with a Commission spokesperson pointing out that conflicting views had been seen in recent weeks on the issue of short-selling. In May, Germany surprised everyone by banning until March 2011 naked short-selling on debts in the eurozone and certain CDS negotiated on markets regulated by Germany, and is considering extending the ban to all shares and public loans in the eurozone and naked investing in eurozone country bonds. (M.B./transl.fl)