German short-sell ban sends markets tumbling
Germany's moves to prevent speculators betting against the euro triggered a worldwide shares sell-off yesterday, with the FTSE 100 Index plummeting 2.5%.
The German ban on short-selling of eurozone government debt and shares of major financial companies sent indices worldwide deep into the red.
Short-selling bans have been introduced in the UK and US in times of financial instability and their use in Germany has led to fears of more trouble ahead for the eurozone.
Hopes of a resurgence on Wall Street soon vanished as the Dow Jones Industrial Average plummeted another 1.5%, which ensured the FTSE 100 closed steeply lower - down 149.3 points at 5158.1.
The surprise move from Germany - in the wake of a eurozone crisis triggered by the near-bankruptcy of Greece - sent the euro to new four-year lows against the dollar at one stage.
As the day went on, market rumours that Europe's central bank was planning to step in and prop up the euro helped the single currency bounce back to $1.24.
Sterling also fell against a stronger euro, down to just over â‚¬1.16, but gained ground on the greenback, at $1.44.
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Bafin, Germany's financial regulator, said the "extraordinary volatility of the bonds of eurozone states" had justified the moratorium, which will run until March 31 next year.
But some hinted the ban was imposed in response to mounting pressure at home on German Chancellor Angela Merkel, who received flak over her response to the Greece debt crisis.
Mark O'Sullivan, director of dealing at foreign exchange firm Currencies Direct, said further falls in the euro could be ahead.
"It's the market's loss in confidence in politicians' ability to implement the austerity measures needed that is at the root of its decline in value," he said.
"Germany's actions are little more than window dressing to please an electorate already unhappy with having to bail out their European neighbours. If anything, the German actions could make the situation worse as liquidity dries up and banks stop lending to each other."