Tags: EU | Europe | Financial | Crisis

Merkel Demands 'Signal of Strength' on Regulation

Thursday, 20 May 2010 03:41 PM

 

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German Chancellor Angela Merkel urged the world's economic powers to send a "signal of strength" by agreeing to stronger global financial regulation, as markets sagged on doubts about whether European leaders have a handle on their continent's debt crisis.

European stocks and the euro slipped, still unnerved by a unilateral German move to ban some speculative trading practices — a step Merkel's finance minister defended against pointed remarks by other officials that Europe needed to regulate as one.

The trading-practices ban was taken by some as a sign European leaders are not coordinating their efforts to shore up government finances in the 16-nation euro zone, despite agreeing on a 750 billion euro (nearly $1 trillion) loan backstop for governments in danger of defaulting on debt. That package has given markets respite from fears of immediate collapse, but long-term worries about the European economy continue to depress sentiment.

Britain's stock market slid 1.7 percent, Germany's 2 percent and France's 2.3 percent. Worry infected Wall Street too, as the Dow Jones industrial average dropped 2.5 percent and the broader Standard & Poors 500 dropped 2.8 percent by midafternoon New York time.

European leaders have admitted they need to strengthen the rules underlying the euro to limit governments ability to pile up debt, but many analyst are skeptical they have the political will to carry through on that. Meanwhile, severe cutbacks to reduce debt in heavily indebted Greece, Portugal, Spain and Ireland will weigh on growth there for years.

Merkel has stepped up calls for tighter regulation of the financial sector as Germany and its European Union partners push through the rescue package, which is unpopular in Germany.

German voters dislike paying for other countries' mistakes, and Merkel is now emphasizing world leaders' promises to respond with new rules to prevent more financial turmoil — and arguing that market misbehavior has made the current trouble worse.

She recalled that, at the height of the global financial crisis in 2008 when governments had to plow billions into propping up banks, the Group of 20 rich and developing nations agreed "every product, every actor and every financial center must be regulated — we promised people that."

"My appeal is: let us send a common signal of strength at the G-20 summit" in Canada next month, Merkel said at a conference on regulation.

Across Europe, leaders have shown an increased resolve to regulate. On Tuesday, EU governments overrode British objections and U.S. worries to tighten rules for hedge funds, and Germany's securities regulator unilaterally announced curbs on traders of government debt and bank stocks.

On Germany's trading limits, EU Competition Commissioner Joaquin Almunia said he encouraged governments "to adopt such a decision at a European level, not on unilateral basis."

German Finance Minister Wolfgang Schaeuble rejected criticism, saying various European nations had short-selling curbs in place before, some of which hadn't expired.

He said Germany was acting in anticipation of broader European action and also wanted to show, as it debates the rescue package, that "we're not just talking, we're acting."

"I believe in the saying that if you want to dry out a swamp, you don't necessarily ask the frogs if you want an objective verdict."

Markets didn't like it.

"The question of EU unity following Germany's unilateral naked short-selling ban has investors particularly on edge, along with concerns on the sustainability of the European rescue package and the potential dampening effect that fiscal tightening could have on global growth," said UBS analyst Geoffrey Yu.

In the debt crisis, Merkel has insisted on tough conditions for a joint EU bailout of Greece, and called for new rules to prevent governments from undermining the euro with reckless spending, even suggesting that persistent violators could be kicked out of the euro.

In response to the global economic crisis, the G-20 — which combines traditional leading industrial nations with rising powers such as China and India — has been designated the key forum for economic coordination among countries.

Germany earlier this year announced plans for a levy on banks, which would pay into a fund to cover the costs of future financial crises. Merkel this week has advocated some form of financial market taxation, perhaps on transactions.

On Thursday, she urged countries that have been unenthusiastic about tighter rules to recognize the need for them. Canada, Australia and Japan have argued that their banks didn't suffer massive failures and therefore shouldn't have to bear the burden of new taxes.

With European and even U.S. backing for the idea of a bank levy, "if there are again three countries that say, 'but we're not affected by that,' then that's extremely frustrating and ultimately can't move us forward,'" she said.

Tiff Macklem, a deputy Canadian finance minister, argued at the same Berlin forum that there was no "one-size-fits-all solution" to that particular issue.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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