Brussels, 15/03/2011 (Agence Europe) - At the ECOFIN Council meeting of Tuesday 15 March, member states were split over the draft regulation on short-selling and derivatives deals (see EUROPE 10125). The meeting focused on whether the regulation should cover credit default swaps on sovereign debt (sovereign CDS) and the role of the new European Securities and Markets Authority (ESMA) with the view of reaching agreement in principle at the Council in May.
As far as the European Commission, the OECD and the IMF are concerned, there is no proof that short-telling was what caused the serious problems on the sovereign debt market, explained the British representative, adding that restricting naked short-selling on the bond market would run the risk of restricting the fluidity of bonds and increase lending costs for nation states. Slovenia and the Netherlands also oppose any restrictions on the bond market. Italy and Spain are urging their partners to take a cautious approach.
France warned of the danger of returning to self-regulation, which it says is one of the causes of the financial crisis. Saying that it is very difficult to track sovereign debt deals, the French finance minister, Christine Lagarde, recommended a cautious approach in the public interest. Germany pointed out that the regulation originated in the 2008 financial crisis, when several countries faced sudden and massive sales of their bonds. The German representative said that the EU had to arm itself for the future so it can act in a coordinated manner and that the planned exemptions (boosted in number by the Hungarian Presidency) for primary dealers, pension funds and indirect hedging are likely to generate concerns about the question of liquidity. Mentioning the problems it has had to face itself, Latvia welcomed the idea of the new EU rules covering sovereign debt and this view was backed by Bulgaria and Portugal.
Likewise for the European Commission. EU Internal Market Commissioner Michel Barnier said that if the naked short-selling restrictions are watered down too much, then it will be difficult to reach agreement with the European Parliament, which has taken an extreme view. When adopting the draft Canfin Report, the EP's economic and monetary affairs committee went along with the naked short-selling restrictions and called for a ban on certain sovereign CDS sales.
Belgium recommended taking an intermediate line of only retaining the views reached at the end of the meeting. Otherwise, warned the Belgian finance minister, Didier Reynders, the debate will focus on whether or not to exclude sovereign debt.
ESMA. In the European Commission's original draft, ESMA was to be made responsible for emergency action in the event of crises covering more than one country. It will coordinate action at national level and publish opinions on the pertinence of such measures and have the power to decide of its own accord to ban naked short-selling in the EU. During the debate, France said it wanted ESMA to be allowed to take action in the event of an emergency. The UK did not oppose the idea of ESMA having an important role. Denmark says that any action by ESMA should be subject to prior agreement from the authorities in the country/ies in question. Backed by Luxembourg, Sweden wants a better definition of what constitutes an emergency. (M.B./transl.fl)