The markets were made for man, not man for the markets

Earlier this month it was threatening terrible consequences if Britain should elect a hung parliament. When we did, it told politicians to hurry up and form a coalition. Now it glowers over the deficit, wagging its finger at the government and calling for cuts, forgetting just how much of the deficit was accumulated while propping it up. It is that schizophrenic, mostly mythical beast known as the market.

Today the markets are barking at Germany, which has banned ‘naked short selling’ to protect its banks. It’s a reprimand to irresponsible speculators, who have responded by punishing the Euro. “German restrictions on short selling seem set to send another shockwave across markets as investors are once again left asking questions over the resilience of Europe,” says one analyst today. But Europe isn’t going anywhere. Most of its economies are sound. There are heavily indebted members, sure, but the main reason that the Euro is in crisis is because the speculators say it is. We seem to be caught in this rather ridiculous vicious circle:

1. Something gives speculators the fear – new research, latest figures, bad news, etc
2. The self-fulfilling prophecy of the markets kicks in, and whether or not there was a problem to begin with, a frenzy of selling means there is one now.
3. Pressure mounts on the government to step in and deal with the problem, which it does.
4. Government action confirms the market’s suspicions that there was a problem. Cue more selling.

So well done Germany for blocking short selling and taking away the market’s toys. Belgium is considering doing the same. We have a responsibility to follow suit in the UK, and restrain the City from tearing the Euro down for profit. It would be a very short-sighted thing to do, to destroy the economies of our key trading partners for short-term gain.

More importantly, just when are we going to get around to regulating the banks again?