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Business

In joint letter, Merkel and Sarkozy urge EU naked short selling ban

In a show of unity, Germany and France have written the European Commission urging it to speed up the process of financial market regulation and calling for the adoption of a ban on naked short selling.

Merkel and Sarkozy

The letter was a show of unity between Germany and France

The leaders of Germany and France have sent a joint letter to the European Commission calling for the body to accelerate the pace of finance reform.

German Chancellor Angela Merkel and French President Nicolas Sarkozy sent the letter to Jose Manuel Barroso, president of the European Union's executive body. They asked him to consider "an EU-wide ban of naked short selling of all or certain shares and sovereign bonds as well as all or certain naked CDS (credit default swaps) on sovereign bonds."

Credit default swaps are when investors buy a kind of insurance on a stock or government bond, essentially betting that the asset will go into default.

"Naked" short selling is a similar kind of bet that an asset will lose value, but unlike conventional short selling the seller does not actually own the underlying asset. Some governments and economists blame these practices for exacerbating Europe's economic crisis.

French stock market graph showing decline

Some say markets need stricter regulation to stabilize

The German government unilaterally banned most naked short selling last month, upsetting markets and some of its fellow EU member states.

The two leaders recognized that "strong measures have already come into force." But added that the recent instability of financial markets has "raised serious concerns among member states of the European Union and all our citizens."

Franco-German solidarity

The join letter comes after a period of rising tension between Germany and France, the EU's two largest economies.

Berlin has emphasized the need for eurozone governments to reduce budget deficits to support the common currency, while Paris, which has heard the roaring voices of trade unions, is wary of embarking on its own austerity measures.

France, meanwhile, has advocated for the creation of an "economic government" for the 16-nation eurozone, with an executive body that would better coordinate economic policy and stimulate growth. Germany has yet to be convinced of the idea's effectiveness.

Author: Andrew Bowen (dpa/AFP/Reuters)
Editor: Nancy Isenson

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