Desperate times call for desperate measures. Or so it seems, as Germany unilaterally bans naked short-selling and credit-default swaps.
Short-sellers usually borrow shares that they think will fall in price in the near future. They sell them right away.
If and when the stock falls, they buy them back and return them to the lender keeping the difference in price.
Naked short-selling occurs when a trader sells stocks, bonds or currency without borrowing them.
And naked credit-default swaps are used to insure against losses.
Germany's announcement was meant to crack down on speculators and shore up the euro.
Instead, markets took the move as a sign of political panic sending the euro to a four-year low.
But Angela Merkel, the German chancellor, is convinced stricter regulation across Europe is the key to rescuing the embattled currency.
So, does that reflect panic in the eurozone? What are the implications on its economy?
Inside Story, with presenter Hazem Sika, discusses with guests Heribert Dieter, the co-director of the Warwick Commission on International Financial reform, Jacques Reland, the head of European Research at the Global Policy Institute, and Tony Avirgan of Global Policy Network.
This episode of Inside Story aired from Thursday, May 20, 2010.
Source: Al Jazeera