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Europe

Germany calls for European ban on short-selling

Text by News Wires

Latest update : 2011-08-12

Germany called for a Europe-wide ban on short-selling stocks Friday after France, Spain, Italy and Belgium prohibited the practice in a bid to calm market fears sparked by the eurozone debt crisis and rumours over the health of Europe's banks.

AFP - Germany on Friday called for a Europe-wide ban on short-selling shares after four of its EU partners banned the speculative practice for two weeks to stem wild market volatility.

"The German government has been monitoring the problem of short-selling for some time and thus banned naked short-selling in Germany last year. In addition we are calling for a broad short-selling ban in Europe," a finance ministry spokesman said.

"It is the only way to tackle destructive speculation convincingly. The announced measures by France, Italy, Spain and Belgium have our support," he said in an e-mailed message.

France, Italy, Spain and Belgium banned short-selling in bank shares after misleading rumours about their financial health saw them suffer massive losses in recent days.

The move echoes steps taken at the height of the global financial crisis sparked by the collapse of Lehman Brothers in 2008 and reflects deep concern over the current turmoil as Europe tries to tame a deepening debt crisis.

When investors opt to short sell stocks they are betting that they will fall in price, allowing them to buy them later much cheaper and pocket the difference.

Supporters claim the practice allows investors a hedge against risk but critics say it only adds to the downward pressure in falling markets and serves no real purpose beyond a grab for short-term profit.

Naked short-selling, the practice Germany stopped last year on certain securities, can be even riskier because the trader does not borrow the stock or bond before it is traded.

An original ban imposed unilaterally by Germany's financial regulator without informing other Group of 20 countries in May 2010 angered Berlin's European partners and roiled markets worldwide.
 

Date created : 2011-08-12

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