Otmar Issing, the European Central Bank's former chief economist, told German TV a move to eurobonds would impoverish Germany and subvert the Bundestag. "That would be catastrophic. I cannot understand how any German politician agree to this," he said. Germany's constitutional court has yet to rule on the legality of EMU's bail-out machinery and is likely to pay close attention to his warnings that the drift of EU policy is to concentrate budgetary powers in the hands of EU officials outside democratic control. Professor Wilhelm Hankel from Frankfurt University said a eurobond is camouflage for fiscal union. "That is forbidden under EU law and the German constitution. Everybody in parliament realises we are very near to the Rubicon and that if they say yes to eurobonds they cannot stop the march to a transfer union." Mrs Merkel's spokesman played down hopes of a breakthrough at Tuesday's meeting, denying reports that eurobonds are on the agenda. The meeting will focus on tougher rules for delinquents. Wolfgang Schäuble, Germany's finance minister, is sticking to the script that the EU's accord in July provides all the tools needed to tackle the crisis. "I'm ruling out eurobonds for as long as member states pursue their own financial policies and we need differing interest rates as a way to provide incentives and sanctions, in order to enforce fiscal solidity. Without this solidity, the foundations for a common currency don't exist," he told Der Spiegel. However, events are moving at lightning speed and markets fear the €440bn bail-out fund (EFSF) is too small to cope with dual strains in Italy and Spain. The crisis has now escalated to a new and dangerous level as concerns over a global double-dip recession put the spotlight on the debt dynamics of France. The French economy stood still in the second quarter and EFSF costs may see the country to lose its AAA rating. The simmering revolt in the Bundestag makes it almost impossible for Mrs Merkel to offer real concessions at Tuesday's emergency summit with French president Nicolas Sarkozy. "We are categorical that the FDP-group will not vote for eurobonds. Everybody must understand that there is no working majority for this," said Frank Schäffler, the finance spokesman for the Free Democrats (FDP). 
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Tuesday, August 16, 2011
Otmar Issing, the European Central Bank's former chief economist, told German TV a move to eurobonds would impoverish Germany and subvert the Bundestag. "That would be catastrophic. I cannot understand how any German politician agree to this," he said. Germany's constitutional court has yet to rule on the legality of EMU's bail-out machinery and is likely to pay close attention to his warnings that the drift of EU policy is to concentrate budgetary powers in the hands of EU officials outside democratic control. Professor Wilhelm Hankel from Frankfurt University said a eurobond is camouflage for fiscal union. "That is forbidden under EU law and the German constitution. Everybody in parliament realises we are very near to the Rubicon and that if they say yes to eurobonds they cannot stop the march to a transfer union." Mrs Merkel's spokesman played down hopes of a breakthrough at Tuesday's meeting, denying reports that eurobonds are on the agenda. The meeting will focus on tougher rules for delinquents. Wolfgang Schäuble, Germany's finance minister, is sticking to the script that the EU's accord in July provides all the tools needed to tackle the crisis. "I'm ruling out eurobonds for as long as member states pursue their own financial policies and we need differing interest rates as a way to provide incentives and sanctions, in order to enforce fiscal solidity. Without this solidity, the foundations for a common currency don't exist," he told Der Spiegel. However, events are moving at lightning speed and markets fear the €440bn bail-out fund (EFSF) is too small to cope with dual strains in Italy and Spain. The crisis has now escalated to a new and dangerous level as concerns over a global double-dip recession put the spotlight on the debt dynamics of France. The French economy stood still in the second quarter and EFSF costs may see the country to lose its AAA rating. The simmering revolt in the Bundestag makes it almost impossible for Mrs Merkel to offer real concessions at Tuesday's emergency summit with French president Nicolas Sarkozy. "We are categorical that the FDP-group will not vote for eurobonds. Everybody must understand that there is no working majority for this," said Frank Schäffler, the finance spokesman for the Free Democrats (FDP). 
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European regulators will ban short-selling in four countries’ financial stocks from Friday in a coordinated effort to restore confidence in a market hit by rumours, higher borrowing costs and a steep rise in emergency financing.
In a statement issued close to the end of the day, the European Securities and Markets Authority (EMSA) said Belgium, France, Italy and Spain were set to bring in the ban, which will vary in detail from country to country.
The announcement follows days of speculation about the health of French banks, which are heavily exposed to the European countries at the centre of the region’s debt crisis.
“While short-selling can be a valid trading strategy, when used in combination with spreading false market rumours this is clearly abusive,” EMSA said in a statement.
“Today some authorities have decided to impose or extend existing short-selling bans in their respective countries. They have done so either to restrict the benefits that can be achieved from spreading false rumours or to achieve a regulatory level playing field.”
The statement was soon followed by specific announcements from financial regulators in at least three of the countries. France and Spain will ban short selling on financial stocks for 15 days, and Belgium will ban short selling of four financial stocks for an indefinite period. The details of the Italian ban weren’t immediately clear.
The concern about the French banks had sent shock waves through credit markets, pushing interbank borrowing rates higher and triggering a 3-month high of 4 billion euros in emergency overnight borrowing from the European Central Bank.
“With banking rumours surfacing yesterday, it feels like the run-up to Lehman’s collapse, where banks don’t trust each other,” said Commerzbank rate strategist Christoph Rieger.
The three-month euro-dollar cross-currency basis, which reflects the premium for swapping euro Libor into dollar Libor, widened to as much as 95 basis points, up around 40 bps since the start of August.
The signals from Europe set off alarm bells in Asia. Banking sources told Reuters that one bank in the region had cut credit lines to major French lenders, while five others were reviewing trades and counterparty risk.
Investors saw the latest loss of confidence as a sign that few of the problems that brought bank lending screeching to a halt last time around have really gone away.
“The market is already broken. It has never fully recovered anyway from 2008. Liquidity comes in fits and starts, and risk appetite in the banks is understandably very modest,” said Stephen Snowden, fixed income manager at Aegon Asset Management.
At the centre of the storm was French bank Societe Generale, whose shares dropped 15 percent on Wednesday, only to climb 3.7 percent on Thursday in volume nearly three times the average over the past 90 days.
The European banks index was 3.9 percent higher, with BNP Paribas about flat, and Credit Agricole finishing up 5.1 percent.
Bank of France Governor Christian Noyer said French banks were solid and that their solidity would not be affected by recent market turmoil.
“Their capital levels, boosted by strong equity capital, are adequate, and their medium- to long-term financing programs are being carried out in perfectly satisfactory conditions,” Noyer said in a statement.
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