S&D Backs EU Ban On Sovereign Debt Speculation
S&D Euro MPs will tomorrow in Strasbourg back a deal to ban the riskiest forms of speculation on financial markets.
The deal targets short selling practices and remarkably credit default swaps (CDS), used mainly to cover the risk of a potential loss that may occur on sovereign or corporate bonds. These have in practice increased the debt burden of Greece, Portugal, Spain and recently Italy.
Said S&D spokesman for economic and monetary affairs, German MEP Udo Bullmann: “Negotiations with the Council have been long and tough. From the outset, and despite its official statements, the Council argued for minimal, unambitious regulation on short selling.
“In the end, we have reached a compromise that is clearly a success for the European Parliament and for our group in particular.”
Said Luxembourg Euro MP Robert Goebbels, who negotiated for the S&D group: “This legislation on short selling is one of the most important for tackling the euro zone crisis, in particular for discouraging speculation against debts owned by member states.
“I simply regret that we couldn’t reach an agreement sooner. Then, we would have had a much less difficult summer.”
The agreement introduces a ban on uncovered short selling against sovereign debts, a practice that does not benefit the overall economy but creates an incentive to bet on the failure of entire countries.
“Investors won’t be able to buy Portuguese or Greek CDS without owning the underlying debt bond. This is a major achievement. We cannot any longer accept that speculators should make fortunes at the expense of European citizens,” stressed Mr Goebbels.
In addition to the ban on naked short selling, the regulation imposes notification and disclosure requirements of short positions in stocks, thus shedding light on a hitherto little-known market practice. The powers of the European Authority that supervise financial markets will also be strengthened to ensure a coordinated regulatory approach across Europe.