Financial Regulatory Forum

By Luke Baker

BRUSSELS, May 19 (Reuters) – Just when the European Union was beginning to show signs of unity in tackling its debt crisis, Germany may well have thrown a spanner in the works.

Berlin’s decision late on Tuesday to ban several financial transactions — a move designed to quell volatility — not only took the markets by surprise but most of its euro zone partners too, and has led to more uncertainty, not less.

The ramifications for the euro zone and its 11-year-old currency could be profound. Not only does the move undermine efforts to improve coordination and political unity across the European Union, but it has sent the euro to a new four-year low.

“This sends a very unfortunate message,” said Simon Tilford, chief economist at the Centre for European Reform, a London-based think-tank.

“It again suggests that the Germans are no closer to understanding that the markets are not the problem here. The markets are right to be uncertain about the sustainability of the euro zone in its current form.”

By Huw Jones and John O’Donnell

LONDON/BRUSSELS, May 19 (Reuters) – The European Union, struggling to calm volatile financial markets, intends to curb speculation in government debt but remains very unlikely to imitate harsh steps announced by Germany.

The difficulty of enforcing any prohibition on speculative trade, and concern that any ban might backfire by depriving investors of ways to hedge their risks, mean many governments are reluctant to try to introduce regional or global bans.

Instead, the EU is likely to focus on increasing transparency in the markets — forcing traders to disclose more information about their activities, so that regulators can see risks emerging — and on introducing limits to the size of derivatives positions which traders can hold.