4 EU Countries Ban Short-Selling of Stocks

Posted August 11th, 2011 at 7:25 pm (UTC-5)
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France, Italy, Spain and Belgium are imposing bans on short-selling of stocks to calm market turmoil aggravated by rumors about Europe's huge debts.

The European Union markets supervisor made the announcement late Thursday after two days of volatile trading caused French bank stocks to rise and fall by huge amounts.

The bans on short selling in the four countries will be effective Friday. Officials also warned traders against spreading false rumors in order to profit.

Short selling is profiting from bets on the decline in a share price. The practice has been blamed for contributing to market volatility.

The developments come as German Chancellor Angela Merkel and French President Nicolas Sarkozy plan to meet Thursday to see if they can craft a plan to contain the spread of Europe's governmental debt and improve financial management in the 17-nation bloc that uses the common euro currency.

Mr. Sarkozy's office said that the two leaders hope to produce “joint proposals” by September on how they can better manage the euro and stem the turmoil that has rocked the continent's major stock exchanges this week. Mrs. Merkel's spokesman said the meeting would look at suggestions on how to improve economic policy and crisis management across the continent.

World stock markets have been gyrating wildly in the last four days, with alternating days of massive losses and huge gains at the most prominent exchanges.

In part, the volatile trading has been sparked by the first-ever credit rating downgrade for the United States, but also by investors' continued worries that Italy and Spain might need international bailouts after those already secured by Greece, Ireland and Portugal. Investors also voiced fears that France's AAA credit rating could be cut, even though three major credit rating companies affirmed it and the French government has vowed to adopt new austerity measures.

Major European stock markets in London, Paris and Frankfurt all rallied sharply on Thursday.