Merkel's warning over euro future
Published 19/05/2010 | 14:46
German Chancellor Angela Merkel has called for tougher regulation aimed at stock and bond traders along with a crackdown on government debt to contain the continent's financial crisis, warning the future of the euro itself was at stake.
As she urged lawmakers to pass Germany's share of a new €750bn eurozone rescue package, Mrs Merkel said that defending the shared European currency is "about no more and no less than the preservation of the European idea".
"That is our historic task; if the euro fails, then Europe fails," she told the lower house of parliament.
"The euro is in danger - if we do not avert this danger, then the consequences for Europe are incalculable, and then the consequences beyond Europe are incalculable."
Mrs Merkel's warning follows Germany's decision on Tuesday to ban so-called naked short-selling of eurozone government debt and shares of major financial companies in an attempt to ward off steep market drops.
Naked short-selling involves traders selling shares or investments they don't hold in hopes of buying them cheaper later; it's a way of betting a financial asset will fall in price and profiting from the fall.
Germany's roiled financial markets, in part because it suggested to traders that policymakers were grasping at straws to stem the crisis of confidence over the ability of European governments to pay off their heavy debt loads amid slow growth.
Fears that some governments may eventually fail to pay all they owe, or will have to cut back so severely that they sink their economies into prolonged recessions, have weighed on stocks and led to discussions that the 11-year-old eurozone will someday break up.
The €750bn backstop is an attempt to calm those fears by removing the possibility of imminent default, though it does little to address the underlying debt issue.
Politicians have also roundly condemned "speculators" for selling off government bonds, which drives up their borrowing costs and makes it even harder to keep their finances under control. But many analysts say the real problem is simply too much debt.
Still, Europe is showing a new-found resolve to strengthen its regulatory grip. On Tuesday, European Union governments agreed to tighten rules for hedge funds, lightly regulated investment funds that cater to rich and institutional investors and promise high returns from often complex trading strategies.
Citing the short-selling restriction, Merkel said Germany will act alone in areas where that causes "no damage," and said the ban would remain until wider European rules are drawn up.