Paris – Ministers for France, Germany and Luxembourg urged the EU to consider banning speculative trading of high-risk financial instruments known as derivatives, in a letter released by France on Thursday.
French President Nicolas Sarkozy, German Chancellor Angela Merkel and Luxembourg’s Prime Minister Jean-Claude Juncker, who heads the eurogroup of finance ministers, called in a joint letter for an EU inquiry to "prevent undue speculation" with regard to complex deals termed "credit default swaps" (CDS).
If the EU finds that speculation by financial traders is strongly affecting the bond markets on which national governments borrow money, it should "consider… banning speculative CDS trading," said the letter, addressed to EU commission chief Jose Manuel Barroso and the Spanish EU presidency.
The letter was also signed by Greece’s Prime Minister George Papandreou, who has partly blamed speculative activity by international investors for a Greek public debt crisis that has shaken the eurozone.
"We must prevent speculative actions from causing so much uncertainty on the market that prices no longer provide accurate information and state financing reaches a fundamentally unjustifiable level," the leaders wrote.
If "there is a well-founded suspicion that speculative practices are having a considerable impact on the development of (bond) yields, we should quickly establish measures to determine whether they are suitable, and, if necessary, pass the appropriate legislation."
The New York Times reported last month that Goldman Sachs and other Wall Street investment firms had made financing deals with Greece that enabled it to mask the precarious state of its public finances from European regulators.
It said they helped it restructure its debts via complex financial instruments of the kind widely blamed for the collapse of the US housing market that sparked a global financial crisis.
The Greek crisis has raised pressure for tighter regulation of speculative investments.
EU and US authorities have been investigating claims that some investors also sought to profit from Greece’s woes by betting on a fall in the euro, and Greece has accused speculators of worsening its own plight.
"Unprincipled speculators are making billions every day by betting on a Greek default," Papandreou said in Washington on Tuesday.
Greece has been forced to pay a much higher rate of return when it offers debt to investors than that offered by more stable economies, evidence that its volatile economy is making it harder for Athens to secure financing.
AFP / Expatica