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Short-selling: Merkel’s moment of madness

The German chancellor’s short-selling ban had no impact other than to increase speculation about the future of the eurozone.

It was out of the blue and somewhat baffling for all involved. Why has German chancellor Angela Merkel banned naked short selling in German markets of certain financials, debt securities of eurozone countries and eurozone country credit default swaps?

According to the German financial supervisory authority, BaFin, it is an attempt to stop excessive price movements in the securities. But BaFin itself does not appear to have been in the know, admitting that the new rules came as a complete surprise and that it was not entirely clear on what can and cannot be nakedly shorted. Now it seems Merkel wants naked shorting to be banned on all stocks, not just the handful of financial firms she first picked out. Perhaps she had hoped to frighten investors away from selling the euro. It did not work and the euro-dollar exchange rate remains unchanged, if not slightly worse. It’s unsurprising. Her message could be construed as a vote of no confidence.

Indeed, it is easy to infer from the fact that Merkel kept her intentions to herself, and sought no discussion with other key eurozone countries such as France, that she holds out little hope for the euro.

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