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European leaders are facing criticism following the decision by four countries — France, Spain, Belgium and Italy — to temporarily ban short-selling of financial stocks. The short-selling ban comes in the wake of the rout of banking stocks earlier this week led by Societe Generale that plunged 18.9 per cent on Wednesday.
The 15-day ban in each country will begin on Friday, and follows a failed attempt at a wider regional ban. Britain has confirmed it is not considering such a measure.
Observers are warning that the move could have negative consequences, pointing to the key hedging role it gives investors. “I haven't seen such a preposterous decision in my life,” says Mr David Buik of BGC Partners in London, who argues it does nothing but introduce uncertainty into the market.
“If investors conclude governments are trying to fix the market, they will still sell bank stocks. You can ban short-selling but not selling,” tweeted Mr Hugo Dixon of Reuters Breaking Views.
Others have questioned the success of the previous short-selling ban introduced across Europe in 2008. Last year, in a report, the IMF said the move had failed to achieve its objectives.
Overall, the feeling is of yet another failure by Europe's leadership to go beyond short-termism. Says Mr Clem Chambers, CEO of European financial markets Web site ADVFN: “It's like cello-taping the Titanic.”
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