Germany Acts Alone to Protect the Euro and Big Banks Against Speculators

BERLIN — If Germany’s efforts to rein in speculation in European markets were meant to surprise investors, they succeeded — just not quite in the way officials in Berlin might have intended.

On Wednesday, the government’s partial ban on so-called naked short-selling took effect, as part of Berlin’s effort to protect its biggest financial institutions and the euro currency from investors who have been betting against them.

Coinciding with the new rule, Chancellor Angela Merkel, whose rhetoric has intensified as the euro zone’s debt crisis has spread, delivered a fiery speech to the lower house of Parliament, the Bundestag, that combined a demand for governments to assert “primacy” over unruly markets with her gloomy predictions of what would happen if they failed.

“I’ll boil it down to its core,” she told lawmakers. “The euro is the foundation for growth and prosperity” in the European Union. “The euro is in danger. If we don’t deal with this danger, then the consequences for us in Europe are incalculable.”

Even as she spoke, markets were falling in response to her finance ministry’s decision late Tuesday to immediately ban aggressive bets against the financial system. Markets closed down around 3 percent across much of Europe.

European officials, caught off guard, criticized Germany’s unilateral action — the kind of move that, just a few days ago, Mrs. Merkel said would be ineffective in a global market.

“Close cooperation in the E.U. on all issues which have a strong market impact is very important and needs to be strengthened,” the president of the European Union, Herman Van Rompuy, told a news conference in Madrid, Reuters reported. He said he would raise the issue of naked short-selling at a meeting of finance ministers in Brussels on Friday.

In a short sale, an investor sells borrowed assets hoping to buy them later at a lower price and pocket the difference as profit. In a naked short, the investor does so without actually having possession of the assets. Many Europeans have attacked the practice as casino-style speculation that can unfairly disturb the markets.

Several European countries, including France, Austria, Belgium and Spain, have prohibited naked short-selling of shares in their own major financial institutions since 2008. But outside of Austria, there appeared to be little immediate enthusiasm for following Germany’s lead into new areas of prohibition, like government bonds.

“There’s relatively little trading of euro zone government bonds in Paris — it’s more active in Germany,” Christine Lagarde, the French finance minister, told reporters on Wednesday. “So we don’t envisage taking measures.”

Germany has long called for reining in what it sees as the worst excesses of Anglo-American financial capitalism. But the ban on some naked short-selling was seen as a political stance directed mainly at a domestic audience.

Mrs. Merkel opened debate in the Bundestag on Germany’s contribution to the nearly $1 trillion safety net being set up by the European Union and the International Monetary Fund for the euro zone’s weaker members. Once again, Germany will provide the greatest share of the loan guarantees — nearly a fifth.

Mrs. Merkel has been pummeled in the German news media over the previous bailout, which was specifically for Greece, and her coalition is still reeling after its huge election defeat two weeks ago in the state of North-Rhine Westphalia.

But the government’s new aggressive attack on speculators won her admiring headlines as the debate over the larger bailout opened Wednesday.

The German financial regulator, BaFin, said Tuesday that it had banned naked short-selling of euro zone government bonds and was reinstating a ban on naked short-selling in the shares of 10 German financial institutions — including Deutsche Bank, Commerzbank and Allianz — until March 31, 2011.

BaFin also enacted a ban on uncovered credit-default swaps on euro zone government bonds, meaning investors would not be allowed to buy default protection against debt unless they actually owned the underlying bonds.

The moves carry uncomfortable associations for investors, as they echo measures taken by the global authorities to calm markets as the financial crisis began building to a peak in 2008.

In the United States, the Securities and Exchange Commission enacted several temporary bans against the naked short-selling of American banks that year, as did most major developed countries. Last July, American authorities tightened the rules governing naked shorting to curtail abuses.

Only on Sunday, Mrs. Merkel told the German Federation of Trade Unions that she opposed the idea of Germany taking any unilateral measures, since markets are global. Germany would require the support of the European Union as well as the United States, Japan and other countries, she said.

In fact, the majority of trading in sovereign European debt takes place well beyond the reach of German regulators, in London and New York. That left analysts and officials trying to understand how much impact the German measures would have.

A spokeswoman for the British Treasury declined to comment beyond a statement from the Financial Services Authority, the regulator, which said: “We note what Germany has implemented and will assist BaFin wherever appropriate. The scope of these bans relate to German participants or business taking place inside Germany and does not cover branches of German institutions outside Germany.”

Mrs. Merkel is expected to try to win more support for the ban on Thursday when she speaks at an international finance conference that will consider specifically how the markets can be regulated.

Judy Dempsey reported from Berlin and David Jolly from Paris. Reporting was contributed by Matthew Saltmarsh from Paris, Jack Ewing from Frankfurt and Julia Werdigier from London.