France, Germany back EU speculative trade ban

(PARIS) - France and Germany urged the EU on Thursday to consider banning certain high-risk financial trades, targeting the speculators accused of worsening a Greek debt crisis that has shaken the eurozone.

The move by the two countries, which have led efforts by the Group of 20 to reform global finance, came as plans for tighter EU financial regulation reportedly raised the concern of the US government.

The Financial Times said US Treasury Secretary Timothy Geithner has expressed concern to Brussels that an EU crackdown on speculative investments may lead to anti-competitive rules that penalise US financial groups.

French President Nicolas Sarkozy and German Chancellor Angela Merkel called in a joint letter for an EU inquiry to "prevent undue speculation" with regard to complex deals termed "credit default swaps" (CDS).

If the EU finds that speculation by financial traders is strongly affecting the bond markets on which national governments borrow money, it should "consider... banning speculative CDS trading," said the letter, addressed to EU commission chief Jose Manuel Barroso and the Spanish EU presidency.

It was also signed by Luxembourg's Prime Minister Jean-Claude Juncker, head of the eurogroup of finance ministers, and Greek premier George Papandreou, who has partly blamed speculative investors for Greece's public debt crisis.

"We must prevent speculative actions from causing so much uncertainty on the market that prices no longer provide accurate information and state financing reaches a fundamentally unjustifiable level," the leaders wrote.

If "there is a well-founded suspicion that speculative practices are having a considerable impact on the development of (bond) yields, we should quickly establish measures to determine whether they are suitable, and, if necessary, pass the appropriate legislation."

Greece has been forced to pay a much higher rate of return on its debt to investors than that offered by more stable economies, making it harder for it to secure financing and threatening the stability of other eurozone countries.

The New York Times reported last month that Goldman Sachs and other Wall Street investment firms had made financing deals with Greece that enabled it to mask the precarious state of its public finances from European regulators.

It said they helped it restructure its debts via complex financial instruments of the kind widely blamed for the collapse of the US housing market that sparked a global financial crisis.

EU and US authorities have been investigating claims that some investors also sought to profit from Greece's woes by betting on a fall in the euro.

The crisis has raised pressure for tighter regulation of speculative investments.

The letter released by the French presidency on Thursday called on the EU to step up efforts to force traders to report all their derivatives transactions.

"This will allow the regulators to identify the main dealers and tightly monitor their activity. Regulators should have unlimited access to those market data," they wrote.

"We also have to work towards ensuring that European regulators receive the relevant detailed information from non-European trade repositories."