French minister rebuffs Merkel, insists euro not in danger
French Economy Minister Christine Lagarde said on Thursday that she did not believe the euro's survival was in danger, after a German clampdown on short-selling triggered a new fall in the currency.
Lagarde said France would not follow Germany's unilateral ban on the naked short selling of certain stocks and bonds, and distanced France from German Chancellor Angela Merkel's warning that the euro was in danger.
"I absolutely do not believe that the euro is in danger," Lagarde told RTL radio. "The euro is a solid, credible currency that has assured the stability of the eurozone for more than 10 years."
While Lagarde denied there was any dispute between Paris and Berlin on euro policy, her comments clearly marked her stance as separate from Merkel's, both in terms of regulatory policy and of its presentation.
On Wednesday, Merkel had defended her short-selling ban in stark terms.
"This test is existential and it must be overcome ... if the euro fails, then Europe fails," she told German lawmakers. "The euro is in danger.
"If we do not avert this danger then the consequences are incalculable and the consequences for the whole of Europe are also incalculable."
Despite Merkel's insistence that European solidarity is vital for the creation of what she called a "culture of stability", her decision to impose the short-selling ban without consulting her partners spooked the markets.
The euro plunged to its lowest level against the dollar in four years on Wednesday, before rallying slightly Thursday to around 1.23 dollars.
Lagarde insisted that this fall was no reason for concern, saying that despite current "fears and threats" the euro had been launched in 1999 as equivalent to 1.16 dollars and had at times traded at less than one dollar.
"There's a margin for fluctuation, but what we see over the long term is the credibility of a currency and the euro is a credible currency," she said.
While speaking diplomatically, Lagarde also criticised Merkel's decision to ban traders from naked short selling eurozone sovereign bonds, credit default swaps and shares in 10 of Germany's top companies.
In a naked short, a trader sells a stock that he does not yet own, hoping to be able to borrow or buy it more cheaply before he has to part with it, and thus being able to pocket the difference.
Lagarde said the German decision "was a measure that should have been taken in concert" with Berlin's European partners and was in itself "open to debate in its modalities."
She said Germany was merely following France in banning the short selling of certain stocks, but that France would not follow Germany in banning it for the sovereign bonds at the heart of Europe's current fiscal woes.
France feels that markets should remain free to trade in sovereign debt, she said, for "reasons of liquidity". Germany fears that short-selling could encourage a run on sovereign debt in debt-ridden states like Greece.
But Lagarde denied that the disagreement marked a new rift between Berlin and France, traditionally close allies in European decision making.
"Not at all," she insisted. "We are busy traying to construct the missing rooms of the euro's house, and this construction involves working to consensus through a confrontation of ideas."
© 2010 AFP