EU examines debt speculators amid fears over Greece

March 3, 2010

BRUSSELS, March 3 (Reuters) – Officials working for European Union financial markets chief Michel Barnier will meet industry experts and supervisors on Friday to discuss debt speculators amid concerns traders are worsening Greece’s borrowing problems.

The meeting comes as political leaders attack hedge funds for speculating on Greek debt — although such trading is legal, the EU is examining curbing it with new rules and has invited the experts to give their opinion.

“We are looking at this issue very closely,” Barnier’s spokeswoman, Chantal Hughes, said. “We have called in experts to discuss.”

The experts will provide insight into the market for credit default swaps, or insurance for government debt. Many politicians have said trading in such insurance for Greek government bonds is compounding the country’s difficulties.

Earlier this week, a source familiar with the matter told Reuters the German authorities had moved to identify speculators in Greek debt to try to prevent them from profiting from any bailout of the flagging euro zone country. [ID:nLDE6201RX]

The investigation by Berlin is part of delicate deliberations in Germany as to whether it should help bail out Greece.

European political leaders, as they consider how best to act, are keen to deter hedge funds and other speculators from exacerbating Greece’s problems by betting on the cost of insuring or buying the country’s debt.

Jean-Claude Juncker, who chairs regular meetings of euro zone finance ministers, has warned that “torture equipment” could be used against such speculators.

Many believe that allowing hedge funds to buy insurance against the default of a government bond they do not own creates incentives to manipulate the market. French economy minister Christine Lagarde has called for the outlawing of such trading. (Reporting by John O’Donnell, editing by Dale Hudson)

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