The Germans have got their retaliation in first, perhaps miffed at being bulldozed into supporting Greece and the euro, by unilaterally banning naked short-selling of euro government bonds and related credit default swaps. Also banned was short-selling of shares in Germany’s leading 10 finance houses.
That has spooked the markets, as has the latest speech by the German chancellor: “the euro along with the domestic market is the basis for growth and prosperity in Germany, and the euro is in danger. The currency union is a common destiny. We are therefore dealing with no more and no less than the preservation of the European ideal, which is being sorely tested,” said Angela Merkel on Wednesday.
Portugal has also renewed its ban on the trade, imposed 2 years ago, in an implicit endorsement of Germany’s stance, which has also been supported by Spain and Austria. Portugal’s Prime Minister Jose Socrates has also been on TV to insist his government’s recent extra spending cuts are vital: “I only speak for myself. I have the conscience to be doing my duty. the country needs these measures. They are essential and necessary.”
Spain’s latest bond issue has also failed to hit its 6.5 billion euro target, being slightly undersubscribed by 65 million. The treasury says it preferred to undershoot its target rather than pay higher interest, even though interest on the 12 and 18-month paper is higher than previous issues.
Completing the round of the most under-pressure eurozone economies Greece today paid off in full its 10-year bond worth 8.5 billion euros, on which it has paid 6 percent interest. It was this May the 19th repayment deadline that sparked the EU and IMF rescue for fear Greece would default.