Finance | 20.05.2010

Merkel sticks to her guns, calls for global market reform

Großansicht des Bildes mit der Bildunterschrift: Merkel wants the G-20 to agree to meaningful reform

Angela Merkel told a meeting of international financial leaders that the G-20 must work together to reform the finance system. Merkel is pushing for tougher market regulations despite resistance from many countries.

All countries in the Group of 20 need to cooperate on reforming the financial system, even those not hit by the economic crisis, German Chancellor Angela Merkel insisted on Thursday as she opened an international conference on financial regulation in Berlin.

"My plea for the G-20 is, even if your countries have not been affected by specific tendencies of the financial markets, the task is to bring forward the process as a whole," she said. "We need to send a joint signal in moments of crisis." She also called on the G-20 countries to unite on stricter rules and better checks on the financial markets.

Her comments appeared to be aimed at least partially at Canada, the host of next month's G-20 meeting, as well as some emerging economies who do not see themselves as responsible for the crisis.

"We are doubtful that you can tax your banks to stability," said Canadian Deputy Treasury Secretary Tiff Macklem at the conference.

Bildunterschrift: Großansicht des Bildes mit der Bildunterschrift: Some European leaders think speculators are responsible for weakening the euro

While Merkel and French President Nicolas Sarkozy both agree on the need for a transaction tax to curb the excesses of the financial sector, French Finance Minister Christine Lagarde was less pleased with Berlin's unilateral decision to ban short selling on Tuesday.

She said France had no intention of following suit. "It seems to me that one ought to at least seek the advice of the other member states concerned by this measure," she added.

A ban on betting against the euro

The German market and the euro took a hit after German market regulator BaFin put an end to naked short selling late Tuesday. The moratorium will last until the end of March next year and is intended to slow speculators engaging in naked short selling against the sovereign debt of financially troubled countries like Greece.

Naked short selling occurs when speculators temporarily sell securities which they hope they can borrow. If the speculator can then obtain the sold security, and it loses value as predicted, it can later be repurchased for less money, generating profit.

BaFin said in a statement the moratorium is justified because of the "extraordinary volatility of European government debt securities."

Putting politics ahead of the economy?

The ban may slow market fluctuations after the European Union and the International Monetary Fund agreed on a 120-billion-euro ($148 billion) bailout for Greece and a 750-billion-euro fund for other countries with teetering finances, such as Portugal and Spain.

Bildunterschrift: Großansicht des Bildes mit der Bildunterschrift: A Greek default on debts could endanger the entire European financial system

Governments fear that Greek bankruptcy would destabilize the entire European financial system.

But some analysts saw the ban as a risky political gesture designed to appease German taxpayers tired of being on the hook for European bailouts.

"It again suggests that the Germans are no closer to understanding that the markets are not the problem here," Simon Tilford, chief economist at the Centre for European Reform, told the Reuters news agency. "What is specific to Germany is a readiness to make unilateral announcements on things that would only be doable if they were done collectively."

The new German ban is also on the agenda for European Union finance ministers meeting in Brussels on Friday.

hf/mz/AFP/dpa/Reuters

Editor: Ben Knight