The position agreed on short selling and credit default swaps proposals by EU finance ministers today is not nearly as damaging as the European Parliament's position which would harm EU sovereign debt markets and London's financial services, Syed Kamall MEP, Conservative shadow lead member on the negotiations, said today.
The council position stops short of the position of the parliament's Economic and Monetary Affairs Committee which wants a ban on Credit Default Swaps (CDS) unless the investor owns the underlying sovereign debt or securities that depend on that country's performance.
Dr Kamall said:
"The Council of Ministers' more balanced position on sovereign debt proves that good legislation takes a little bit longer. In the European Parliament, despite the concerns of myself and my liberal colleagues, we rushed through a ban on uncovered or 'naked' sovereign CDS.
"This knee jerk reaction ignores the European Commission research concluding that sovereign CDS did not cause the crisis in Greece and other EU countries.
"Uncovered or 'Naked' sovereign CDS can be a crucial financial instrument used for hedging all kinds of investments across the EU. If we ban this tool then investment in Europe's struggling economies will risk drying up. Some banks could also see their credit lines withdrawn and a ban would make it much more expensive for governments to raise money by issuing bonds. This means higher taxes and a bigger squeeze on public services in the UK.
"Greece, Ireland, Portugal and Spain already face problems selling bonds. If we make them more expensive now, we could really be playing with fire.
"I will be putting my weight behind the council in future negotiations. You can't rush good economic policy."
Notes: information on the council deal:
http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/en/ecofin/122043.pdf
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European Parliament: Short Selling And Credit Default Swaps Deal Among Finance Ministers
Date 17/05/2011