German ban misses the point

German Chancellor Angela Merkel
said the “euro is in danger” and warned that if the “euro fails,
Europe fails.”

That was the reasoning behind a
German government decision to ban naked short selling of German bank stocks,
euro-zone bonds and credit default swaps.

The ban comes in the wake of
Germany’s decision to back a multi-billion euro rescue package for the euro
zone bond market and offer support for Greece. Politically, Merkel is under immense
pressure to find someone to blame for the debt crisis and –having forced
austerity packages on Greece, Portugal and others — is now taking aim at the
Anglo-Saxon speculators.

Merkel just turned off the
financial lights in Europe, one trader said, as the market sold off the single-currency.

Austria told the Financial Times
that it wants a discussion on a Europe-wide ban but there remain big question
marks over whether such a policy can actually work.

“The naked short ban will not
stop people borrowing and selling stocks and has not stopped the shorts in
other countries,” Julian Pittam, managing director of short watchers Data
Explorers, said.

Investors could go out today,
borrow stock in German banks and short them anyway, Pittam said.
France already has a ban in place on naked short selling, but has seen big
losses this year at the likes of Credit Agricole.

“I am not sure how it can be
enforced, details are lacking and it raises more questions than it
answers,” one trader from a leading French trading floor said.

“There are lots of ways to
short a stock and this will not stop most of them,” Nick Wakefield, chief
investment officer at Orchard Wealth Management, agreed.

“The regulator certainly has
chosen to send a message to the markets,” Kit Jukes, an independent economist
who until recently ran the fixed income team at RBS, said. “But it somehow
seems to miss the point. Not sure if it will address the bigger issue.
Investors could react in two ways: take heed and do as they say, or simply vote
with their feet.”