German Chancellor Angela Merkel called for tougher regulation aimed at
stock and bond traders along with a crackdown on government debt to
contain the continent's financial crisis, warning Wednesday that the
future of the euro itself was at stake.
Urging lawmakers to pass Germany's share of a new euro750 billion
($1 trillion) eurozone rescue package, Merkel said that defending the
currency is "about no more and no less than the preservation of the
European idea."
"That is our
historic task; if the euro fails, then Europe fails," she told the
lower house of parliament. "The euro is in danger — if we do not avert
this danger, then the consequences for Europe are incalculable, and
then the consequences beyond Europe are incalculable."
Merkel's warning followed Germany's decision Tuesday to ban
so-called naked short-selling of eurozone government debt and shares of
major financial companies in an attempt to ward off steep market drops.
Naked
short-selling involves traders selling shares or investments they don't
hold in hopes of buying them cheaper later.
The move from
Germany — Europe's biggest economy and a forceful player within the
European Union — move roiled financial markets, in part because it
suggested to traders that policymakers were grasping at straws to stem
the crisis of confidence over the ability of European governments to
pay off their heavy debt amid slow growth.
Fears some
governments may eventually fail to pay all they owe, or will have to
cut back so severely that their economies sink into prolonged
recessions, have weighed on stocks and raised concern over whether the
16-country eurozone might eventually break up.
The euro750
billion rescue package attempts to calm those fears by removing the
possibility of imminent default, though it does little in itself to
address the underlying debt issue.
Politicians have
roundly condemned "speculators" for selling off government bonds,
driving up their borrowing costs and making it even harder to keep
their finances under control. But many analysts say the real problem is
simply too much debt.
Still, Europe is
showing a new-found resolve to strengthen its regulatory grip. On
Tuesday, European Union governments agreed to tighten rules for hedge
funds, so-far lightly regulated investment funds.
Citing the
short-selling restriction, Merkel said Germany will act alone in areas
where that causes "no damage," and said the ban would remain until
wider European rules are drawn up.
The head of
financial regulator BaFin, which imposed the ban, said it wasn't a sign
of weakness in the German banking sector and suggested people hurt by
the measure had circulated rumors that it was a crisis step — prompting
the euro to drop.
Jochen Sanio told
parliament's budget committee that the measure is directed only against
"excessive short selling" which could endanger banks.
Germany, Europe's
biggest economy, is to contribute at least euro123 billion in loan
guarantees to the new rescue package. Parliament is expected to vote on
Friday — just two weeks after approving a separate package for Greece,
already unpopular at home.
In Paris, French
Finance Minister Christine Lagarde said her country would provide loan
guarantees of up to euro111 billion, with legislation going to
parliament on May 31.
Merkel stressed
that aid decisions will need unanimous approval from all involved and
that, where credit is from other governments instead of a common
European pot of money, "we decide ourselves on every use of the funds."
The head of
Germany's central bank, the Bundesbank, called for approval this week
of the package to calm markets. Axel Weber said access to rescue funds
should only be possible if the financial stability of the whole
eurozone is at stake.
While the root
cause of the debt crisis was insufficiently competitive countries
living above their means, Merkel said, markets poured oil on the fire.
"We are now
seeing anew how, through a lack of limits and rules, purely
profit-oriented behavior on the financial markets can be destructive,"
she added. "It is the task of politicians, parliaments and governments
to intervene, to regulate, in case of doubt to ban in order to keep the
risks controllable."
Merkel renewed a
pledge to push for taxation of financial markets — either a financial
transaction tax or another form of levy — in Europe and beyond. She
also pushed for quick action to put ratings agencies under European
supervision and increase transparency on derivatives markets.
The chancellor
was unapologetic about pushing for debt-laden nations to be made to
tackle their budget deficits.
"Europe needs a
new culture of stability," she said, with faster and more effective
punishment for countries that habitually run excessive deficits.
Those could
include withholding European Union structural funds and temporarily
withdrawing voting rights from repeat offenders, she said — adding that
it was important to draw up procedures for an "orderly state
insolvency."
Above all, though, Merkel said all EU members must speed up cutting their deficits.
"Only then can the rescue attempts be effective, because continuing to
cover up the real causes of the crisis wouldn't help Europe," she said.
National Public Radio