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European Union

Published on June 10, 2010
Joint letter from Nicolas Sarkozy, President of the Republic, and Angela Merkel, Chancellor of Germany, to José Manuel Barroso, President of the European Commission

Paris - Berlin, June 9, 2010

President Barroso,

The European Union is fully engaged in implementing the decisions taken by the G20. Strong measures have already come into force, particularly concerning the registration and supervision of credit rating agencies and regulation of banking activities. We are confident that the discussions between the European Council, Commission and Parliament will rapidly lead to finalization of the Directive on Alternative Investment Fund Managers and that the creation of a new European supervisory framework is well under way. We share the priority you accord to the successful outcome of these discussions in your action programme for the next few months.

However, the severe financial market turmoil over the past few months is causing great concern to European Union Member States and all our fellow citizens. While the international community is unanimously committed to no longer leaving any market, product, actor or territory unregulated and unsupervised, the return of strong market volatility makes it legitimate to question specifically some financial techniques and the use of certain derivatives such as, for example, short selling and Credit Default Swaps (CDS).

These concerns were expressed to you in the letter sent on 10 March this year by the President of the French Republic, Chancellor of Germany, Prime Minister of Luxembourg and Greek Prime Minister. They call for the rapid and determined implementation of your programme to regulate the derivatives market. The latest market developments prompt us to request the Commission to speed up and intensify its work further.

Having regard to the recent developments in the markets, we believe there is an urgent need for the Commission to speed up its efforts to strengthen supervision of the CDS market and short selling, and present all the possible areas for action to the July ECOFIN meeting.

In particular, we consider it essential to strengthen transparency on short positions on shares and bonds, particularly sovereign bonds.

The Commission’s work should include a possible EU-wide ban on naked short selling of all or certain shares and bonds and certain credit default swaps on sovereign bonds, as well as the conditions for these, taking particular account of the specific role played by primary dealers.

We also wish the European Commission to look at the possibility of harmonizing at European level the settlement-delivery period for the relevant transactions on European markets.

We know we can count on your full commitment on this issue which is essential for maintaining financial stability in the European Union.

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