Merkel leads charge for tax on financial markets

20th May 2010, Comments 0 comments

Germany called on Thursday for tough financial market regulation, France took a hard line on its huge overspending and Greece faced more street protests, as the eurozone struggled with crisis and division.

With stocks already reeling from a surprise and unilateral move by Germany to curb speculative trading, Chancellor Angela Merkel pressed the case for a global tax on financial markets to help tame excesses blamed for the global economic slump.

"We have now stated that we will campaign for a tax on the financial markets and we will campaign for that at our (G20) summit in Canada," she told a conference on financial regulation.

As for the under pressure euro, put at risk by the eurozone debt crisis, Merkel said "you need stricter rules than other governments that just decide for their own currency.

"We need to tighten up the (EU) Stability and Growth Pact," she insisted, ahead of a meeting of EU finance ministers in Brussels on Friday.

Merkel, German Finance Minister Wolfgang Schaeuble, French Finance Minister Christine Lagarde, who is among those critical of the German trading curbs, and EU economic affairs commissioner Michel Barnier were at the conference.

Merkel caused widespread consternation on Wednesday when Berlin banned so-called naked short selling -- the sale of bonds or shares by market players who neither hold the security nor have borrowed it to make their trade.

If the ban was meant to halt the slide, it failed, instead rocking the global markets and pushing the euro down to fresh four-year low points as investors feared that Europe's spreading debt crisis could force the region's and even the world economy back into deep recession.

On Thursday, sentiment stabilised to a degree but dealers said investors were dismayed by what they saw as an unnecessary, harmful and worst of all, uncoordinated German decision.

"The day will be a roller coaster, no doubt," said Credit Agricole CIB analyst David Keeble. "The German short ban has emphasised that Europe is not unified and this is at a juncture when it really, really needs to be."

Altium Securities analyst Ian Williams said "Merkel, if anything, intensified her rhetoric even as her eurozone partners remained unimpressed with Germany's unilateral actions.

"The lack of co-ordination across the supposed partners within the single currency zone is especially damaging to investor confidence," Williams said.

French Economy Minister Christine Lagarde told RTL radio that France would not follow Germany's lead and distanced France from Merkel's warning that the euro was in danger.

The German decision "should have been taken in concert" with other European nations and was in itself "open to debate," Lagarde said.

The crisis in Europe is being driven by debt and public deficit levels which have soared way above EU rules as governments increased spending to get their economies through the worst recession in decades.

Now the bill is coming home to roost, with markets demanding ever higher rates of interest to provide money to such governments. That in turn makes the state finances worse and eventually led Greece to call in the EU and IMF to organise a 110-billion-euro bailout earlier this month.

On Thursday, French President Nicolas Sarkozy also took up the fiscal cudgels, saying France's constitution should be altered to compel new governments to sign up to a timetable to balance their budgets. And he said he wanted to freeze public spending for three years.

"The restoration of public finances should not just be an undertaking of the government, but of the nation. It should be a long-term engagement and for that the governance of our public finances must change," Sarkozy said. Germany already has such a curb on overspending.

Last week, Brussels, in a move strongly backed by Germany, called for EU vetting of member budgets before they were put to national parliaments so as to tighten control on fiscal miscreants.

Meanwhile, public reaction continued to build after Greece, joined by other weaker eurozone states such as Spain, Portugal and Ireland, slashed spending on pensions and benefits in order to balance the books.

In Spain, public service workers were mounting protests against a government austerity plan which includes pay cuts and a freeze on state pensions.

Greek authorities meanwhile deployed hundreds of extra police in Athens for the fourth general strike in four months which caused widespread disruption.

More than 1,700 extra police were ordered into central Athens alone as authorities seek to avoid a repeat of disturbances that saw three bank employees killed when their branch was hit with a petrol bomb on May 5.

© 2010 AFP

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