4 EU Countries Ban Short-Selling of Stocks

Posted August 12th, 2011 at 2:40 am (UTC-5)
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France, Italy, Spain and Belgium have banned the 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.

Meanwhile, France said Friday its economy posted zero growth in the second quarter, after growing almost 1 percent in the first quarter.

The developments come as German Chancellor Angela Merkel and French President Nicolas Sarkozy plan to meet next Tuesday in Paris to discuss proposals to strengthen the economic governance in the 17-nation bloc that uses the common euro currency. The two leaders hope to come up with proposals on how to stem the turmoil that has rocked Europe’s major stock exchanges this week.

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.