Following Germany in the Banning of Bare sales

, by Pascal Malosse, Translated by Kirsty Chetcuti

All the versions of this article: [English] [français]

Following Germany in the Banning of Bare sales

On the night of 18th May 2010, the German government took revolutionary measures: the banning of bare sales. It’s the first real public response since the trigger of the economic crisis, which was really caused by this origin.

The banning of open sales (that is, the fall of bets) in bare position (that is, by a contributor who is not exposed by the occasional loss of this fall) is very technical and not too comprehensible for the non financially minded. The “experts” are themselves also incapable of popularising their language. One must recall however, that this banning concerns mainly the Credit Default Swaps (coverage in case of failure) on the commitments of the European States, used recently to immerse Greece, then Spain and Portugal. In September 2008, these controls caused the bankruptcy of the Lehman Brothers bank and at that time they had already tempted regulating the great success. It does not work by supporting the real economy and allowing the betting of billions on the fault of payment of an enterprise or of a State with auto realistic consequences. When marketing agencies lower their expenses, they only follow and amplify such speculative attacks.

Further proof which shows that for some decades, finance has become a gigantic casino to the extent that from now on, these two universes are confused: the firms and agencies of Wall Street recruit the best poker players.

This move is a matter therefore, of the first public answer since the triggering of the crisis which attacks itself to its origins. A true ray of hope. This initiative has provoked a critics’ breaker in the part of famous financial “experts”. The latter lament has pointed out the risk of the lack of sales in a world where we’re spending hundreds and thousands above our heads. Seeing the risk of being deprived of one of their favourite playthings, they continue to attack the Euro. The hatchet has definitely been dug out.

A double language of the less subtle

Germany has, without any doubt, decided to go it alone under the pressure of the social-democrat opposition, but has also been surrounded by large tentative of the less subtle, notably France. These big champions who are also known as “the speculator killers” assert that they have not been consulted and are not currently considering following! On the other hand, England has for a very long time decided to protect the financial services of the City, which account for 15% of the GDP of the country, in spite of the opposing opinion of the financial regulator, Lord Adair Turner.

The German initiative will unfortunately remain symbolic if it is not followed by all the world.

The German initiative will unfortunately remain symbolic if it is not followed by all the world. The German banks and investment funds can continue betting as they like on other stock-exchanges. It’s one of the joys of intergovernmentalism in Europe when there is a storm of opinions. The beginning of a solution can immediately be transformed into the beginning of a division. One can criticise this unilateral decision which breaks once and for all the couple Franco-German and puts in difficulty the constitution of a European economical government. It may be useful however, to jostle the habits which rule the lack of political will.

One comes back to the European Commission which proposes an immediate European coordination as far as financial regulation is concerned. This project of restricting the use of Credit Default Swaps has been present for a very long time in the drawers of the General Management of M. Barnier for political reasons. His proposal has to be rendered public by autumn, which is still a very long way to go.

The financial regulation is a global issue which requires a global response. Europe may give an example and give proof to its citizens that it is effectively a “protector”.

Image: Angela Merkel, Federal Chancellor of Germany, speaks during the onpening address to the participants at the Annual Meeting 2007 of the World Economic Forum in Davos, Switzerland, January 24, 2007. Source: WEC on Flickr.

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