LONDON - Despite a move by the European Council to stop short of a permanent ban on naked credit default swap trading on sovereign debt, traders will have to wait a little while longer before they can place their Imodium (Kaopectate) back in their drawers.
Usually, when the Council agrees on a compromise legislative proposal, that’s how the legislation turns out and is agreed upon. Yet, with a permanent ban on naked CDS trading one of the most hotly-debated topics in Europe amongst politicians, it is likely that there will be no short-term deal between European legislative bodies, and with it, a risk that MEPs could get their way and have the Council’s text changed.
Speaking with European political officials today, it seems the real fight for a permanent ban on naked CDS trading has just begun, with some looking at a six-month period before any headway is made between the Parliament and the Council. The key issue will be how Germany, the E.U. big kahuna, sides itself in the negotiations and whether it wishes to spend its political capital, as one lawyer put it, to change the Council’s text.
Germany’s support of a ban is one aspect that MEPs are using as leverage in preparation for negotiations with the Council, as some continue to passionately search in agony to blame those in the financial markets for escalating the eurozone sovereign debt crisis. Despite there being no proof that naked CDS trading on sovereign debt escalates a government’s funding costs, Pascal Canfin, a senior MEP for France, has warned the European Council to be prepared for negotiations, noting in a statement that the Council’s compromise will “facilitate speculation on sovereign debt of countries facing fiscal difficulties.”
The likely support from the European Commission to the Council’s compromise text in the Trialogue discussions has also been downplayed by political officials in the Parliament. Market officials have pointed to the Commission’s likely support of the Council’s position as one reason that will see the text agreed upon in its current form, but political officials have warned that the Commission does not hold co-legislative power and that its role in the discussions is to offer technical advice to both the Council and the Parliament.
Therefore the significance of this issue in European politics should serve as a warning to those firms involved in the debate that they shouldn’t just accept the Council’s decision and shut up their CDS and short-selling lobbying shops. It seems there are still one country and 736 MEPs who could do with a little bit more work on.
