Short-selling banned in 4 European countries
Short-selling of certain stocks is now forbidden in France, Italy, Spain, and Belgium. The ban on short-selling comes as concerns about Europe's debt worsen.
Jacques Brinon / AP
France, Italy, Spain and Belgium are banning short-selling on select stocks amid efforts to calm market turmoil that has sent bank shares gyrating wildly and aggravated worries about Europe's huge debts.
The European Union's markets supervisor, the ESMA, announced the move late Thursday night after boosting surveillance of stormy markets earlier in the day. The move capped two days of whipsaw trading that saw French banks' market value fall and rise by billions of euros.
In a short sale, a trader hopes to make a profit by betting on the decline in the price of a share. The practice has been blamed for contributing to market volatility.
The ESMA said in a statement that the four countries "have today announced or will shortly announce new bans on short-selling or on short positions" as of Friday.
The French market regulator, the AMF, announced late Thursday that it is banning for 15 days net short-selling on 11 stocks, including those of banks Societe Generale, BNP Paribas and Credit Agricole and leading insurers.
Belgium's market authority said it would ban short-selling on financial shares such as leading banks and insurers as of Friday. Belgium had already banned naked short selling, basically a bet on a decline in the price of a share without borrowing the share, since August 2008.
Several countries banned short selling amid the financial crisis of 2008 to try to tame volatility. But some experts said the bans actually contributed to a feeling of uncertainty.
French bankers and officials scrambled to soothe investors' nerves after days of suggestions that France could be the next major economy to lose its coveted triple-A credit rating. By late in the day, those efforts appeared to have an effect, but economists said the rebound remained very fragile.
The European Union's markets supervisor said Thursday that regulators were increasing surveillance of financial markets following the days of steep selloffs.
Bank of France head Christian Noyer blamed "unfounded rumors" for plunges in the shares of top banks, including Societe Generale and BNP Paribas, and said the country's financial institutions were sound. The country's market regulator warned of sanctions against anyone who fuels or profits from rumors that fed the sell-off.
Noyer said that French banks' first-half earnings "confirmed their solidity in a difficult economic environment" and that the banks' capital cushions were healthy.
French bank stocks fell Thursday until strong U.S. jobs data helped propel solid gains on Wall Street late in the European trading day. BNP Paribas closed up 0.3 percent and Societe Generale rose 3.7 percent.
France is taking pains to assure markets that it won't be the next to see its credit rating downgraded.
Attention will be on France's release of second-quarter GDP figures on Friday. Some have warned that France could suffer if it has to spend significant new money to bail out more struggling eurozone states.
The leaders of the eurozone's biggest economies, Germany and France, announced they will meet Tuesday to discuss solutions to Europe's financial difficulties.
French President Nicolas Sarkozy's office said that the two will come up with "joint proposals" on the governance of the eurozone before the end of the summer. Chancellor Angela Merkel's spokesman said the meeting would focus on suggestions for how to improve the zone's economic policy and crisis management.
All three leading credit rating agencies reaffirmed their triple-A assessment of France, and analysts said they could not identify a trigger for the market turmoil.
"There's nothing behind it, it's a market of malintentioned speculators trading on pure rumors," said Marc Touati, an economist at French trading firm Assya Compagnie Financiere.
After Societe Generale, France's second-biggest bank, saw its share price drop nearly 15 percent Wednesday, the bank asked the French market regulator to investigate the rumors that it was on the ropes because of its heavy exposure to debt from troubled eurozone economies.
Societe Generale CEO Frederic Oudea called the rumors "totally unfounded" and "irrational." Speaking on France-Info radio, he urged calm and insisted that the bank's fundamentals are sound.
Oudea said Societe Generale had already accounted for its exposure to Greece's debts in its second quarter earnings.
France's growth prospects are considerably better than those of Italy and Spain's, but its economic expansion is slowing and it's failed for years to reduce a deficit that stood at 7.1 percent last year. No other eurozone economy with a triple-A rating has a higher debt than France's — around 85 percent of national income.
Adding to market worries, French presidential elections scheduled for the spring of 2012 may make it difficult for the government to implement further austerity measures at a time when the economy is slowing.
Elsewhere in Europe, Greece announced a rise in unemployment after a series of unpopular austerity measures aimed at dragging it out of debt that sparked troubles across the eurozone.
And Italy's finance minister, Giulio Tremonti, told lawmakers Thursday that tough and speedy measures are needed over the next two years to balance the budget in 2013. The market turbulence has seen Italy's borrowing costs in the markets spike up to uncomfortably high levels.