Markets Panic after Merkel's Short-Selling Ban; MERKEL DECLARES EURO TO BE IN DANGER; EUROPEAN LEADERS CONDEMN SHORTING BAN; WHAT SPOOKED MERKEL, ASK INVESTORS; FSA SAYS SHORT-SELLERS WELCOME IN LONDON
Byline: Hugo Duncan
STOCK markets across Europe tumbled today after Germany said the euro was in danger and declared war on speculators with a partial ban on short-selling. Chancellor Angela Merkel warned of "incalculable" consequences if the eurozone does not solve its debt problems and the challenges facing the single currency.
"If the euro fails, then Europe fails," she said. "The current crisis of the euro is the greatest challenge that Europe has faced for decades.
"The euro is in danger. If we don't deal with this danger, then the consequences for us in Europe are incalculable."
Berlin stunned Europe by outlawing "naked" short-selling of euro government bonds and related credit default swaps within Germany, as well as of shares in the country's 10 leading financial institutions.
The euro warning and the ban on short selling was a double-whammy for nervous investors and sent financial markets across Europe into a tailspin as speculation mounted that the crisis was even worse than feared.
Joshua Raymond, market strategist at City Index, said: "This prompts the question 'do they know something we don't?'. This move has made traders even more nervous about how financial markets are now behaving."
The FTSE 100 index, which at one stage was down nearly 150 points, was this afternoon 101.7 points lower at 5205.64 in London while the leading Cac and Dax indices in Paris and Frankfurt were down around 2%. On Wall Street, the Dow Jones Industrial Average opened down around 50 points in volatile trading.
The euro hit a four-year low against the US dollar of $1.2144 before settling down 0.20 cents at $1.2182. Sterling was also caught up in the sell-off, falling 0.75 cents to $1.4259. The German financial regulator, Bafin, said the naked short-selling ban, which runs to March 2011, was needed to calm the "extraordinary volatility of the bonds of eurozone states" in the wake of the Greek debt crisis. …