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Euro slides after German trading crackdown

AFP · 19 May 2010, 08:29

Published: 19 May 2010 08:29 GMT+02:00

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Germany's securities market regulator Bafin banned naked short sales of certain securities, in particular the government bonds of the 16 countries that use the euro, from midnight Tuesday (2200 GMT).

But the euro continued to fall on the world's currency markets, with some traders saying the German move had accelerated the trend.

Naked short selling is when an investor sells a security they do not own and have not yet borrowed, hoping to be able to buy it later in the day at a lower price, thereby earning a profit.

"The extraordinary volatility of the bonds of eurozone states" justified the ban on short selling said a statement from Bafin.

Given current market conditions, "new excessive price variations could harm many on the financial markets and threaten the stability of the whole financial system," said the statement.

In addition to eurozone government bonds, the ban also applies to certain credit default swaps and on the shares of 10 financial institutions, and will be in force until March 31 next year.

Short selling has been repeatedly implicated in quick drops in markets, and its use has been limited or banned during the financial crisis on major exchanges.

The euro however, kept falling.

In New York, it fell further against the dollar Tuesday, fetching $1.2206 at 2100 GMT after sinking to $1.2162, its lowest level since April 17, 2006 in New York trading.

And in Tokyo Wednesday, it was changing hands at 1.2144 dollars in early trade, a new four-low against the dollar.

"Reports on restrictions on the financial markets always work as the negative factor to the relevant currency," said Daisuke Karakama, senior market economist at Mizuho Corporate Bank, echoing comments from US traders.

Greek officials say speculative trading played a major part in provoking their debt crisis.

Athens was eventually forced to accept a €110-billion bailout from the European Union and the International Monetary Fund earlier this month.

When that failed to calm investors' fears that the Greek crisis could spread to other heavily indebted eurozone members, the EU and IMF were forced to put together a €750-billion fund.

In Brussels meanwhile, EU finance ministers on Tuesday moved towards tighter curbs on the trillion-dollar hedge fund industry, widely blamed for speculative financial attacks, in particular on currencies.

They agreed on talks with the European parliament to standardise hedge fund regulation across the 27-nation bloc, despite opposition from Britain, which hosts 80 percent of Europe's share of the lucrative industry.

German Chancellor Angela Merkel said Tuesday that she would also push for an international tax on financial markets during next month's summit of leaders of the G20 group of leading developed and emerging economies.

European Commission chief Jose Manuel Barroso last week urged G20 leaders to back an international tax on financial institutions at the G20 summit on June 26 and 27 in Toronto.

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In April, G20 finance ministers asked the IMF to look at taxing big banks to help cut risk and pay for any future financial failures.

But while Washington and Europe back the financial sector tax, Canada has led the opposition: its banks largely steered clear of crisis thanks to prudent risk taking.

IMF experts say the taxes must be coherent among all G20 members to prevent banks from avoiding them by moving operations to countries where the levies were not applied.

There was little comfort meanwhile from leading economist Nouriel Roubini, one of the few experts to predict the financial crisis.

"What's happening in Greece is just the tip of an iceberg of a broader range of sovereign debt issues, of deficit, in many advanced economies," he warned Tuesday.

The new crisis could occur "not just in the eurozone but UK, US, or Japan," he said in a speech at the London School of Economics.

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Your comments about this article

12:36 May 19, 2010 by William Thirteen
demagoguery at its best!
11:05 May 20, 2010 by rugbycoach
Really rather pathetic attempt by Germany to control the markets...without the solidarity of other countries doing the same it will affect nothing and make Eurozone look even more divided. A weaker Euro may well be a useful tool and a boost to manufacturing, although of course costs will increase as oil is priced in USD
04:30 May 21, 2010 by Mh0926
A ban to short government bond and certain financial institue isn't a good idea.

That gives worse imagination of near future, like message @ kropotkin

Free market whthout interfere is usually the best even you are so afraid EUR trend, in normal system it will reflects back its true value, no worry
17:55 May 21, 2010 by William Thirteen
where is peschvogel when we need him?
19:28 May 21, 2010 by Prufrock2010
He's demonstrating on the streets of Athens.
00:08 May 22, 2010 by derExDeutsche
I smell BIG BIG Trouble sometime in the next 2 weeks. Something REALLY BIG is going on.

Germany and Markets both scrambling, prepare for impact.
00:50 May 22, 2010 by Prufrock2010
Something BIG, alright. The banks will win again. Business as usual.
22:29 May 22, 2010 by derExDeutsche
a mid Prufrock nights dream

by derExDeutsche

The Players;

Herr Goldklotz - played by the German Citizens

Commissar Stahleier - Played By the German Govt.

Herr Maddoff - Himself

Herr Eichman - Himself

Herr Goerbels - Himself

Scene 1

Walking past the local Casino, Commissar Stahleier hears a commotion heading his direction. Its Herr Goldklotz, a clean cut aging gentleman.

Herr Goldklotz -

'Commissar Stahleier!!! Thank God I found you!! I was just robbed! I was in that Casino playing BlackJack and I lost 100 Euro! Those thieves!!!! I want my money back!! and I want that Casino owner arrested. They told me gambling was dangerous, but this is ridiculous!

Commissar Stahleier-

'Yes, I agree completely, Herr Goldklotz!!! Eichman, Goerbels!! SEIZE Herr Maddoff the Casino owner IMMEDIATELY. He is going to ROT in Jail for Life!! Those evil evil Casino owners, we're going to Rip their throats out!

Herr Goldklotz-

' Oh Thank you, thank you, thank you, Commissar Stahleier!! Aber echt, we Towns people are soooo very very smart to elect a wonderful Commissar like you. ok, see you later, Commissar!!

Commissar Stahleier -

'Ho ho Hold'on 1 minute there, Herr Goldklotz! how much did you say you lost at the casino? 100 Euro? Well, we're going to need 1000 Euro from you. You know, to cover court costs, and Herr Eichman's daughter recently got braces...

Herr Goldklotz-

'B-B-b-But, Commissar Stahleier, I don't HAVE 1000 Euro!

Commissar Stahleier -

'HAHAHAHA! Don't worry, Herr Goldklotz, we will be seeing your employer tomorrow and we will make sure that you will be paying this for decades to come, and with interest, we should all be VERY Satisfied. You DO want Herr Maddoff OFF the streets don't you? I if it wasn't for him, you wouldn't be out 1100 Euro, now would you? Now, ease your mind, go home, and say 'Gruuusss'di' to your Wife and MY kids.

Herr Goldklotz -

'You're the BEST Commissar Stahleier, ::swoons::

Close curtain.
20:38 May 26, 2010 by Prufrock2010
I repeat: don't give up your day gig. Chill out in your cosy banana republic and give up the thought of writing. Even Logic Guy is more coherent than you are.
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