The European Commission ratcheted up pressure on speculators, promising severe treatment for those who gamble on debt default insurance, while the Greek prime minister raised the prospect of banning such trading.Calls to consider closing the market for credit default swaps go further than anything demanded so far and raise the stakes for a summit of leaders from the Group of 20 industrialised and developing economies in June.Michel Barnier, the European commissioner in charge of a regulatory overhaul of financial services across the European Union, meanwhile promised tough action against those who bet on the market for government debt."We intend to deal with this matter very severely," the former French foreign minister, told reporters. "These people don't like to come out in the light of day. We are going to flood them with light."Earlier, Greek Prime Minister George Papandreou told a newspaper that he and other European leaders including German chancellor Angela Merkel had written to ask U.S. President Barack Obama to consider banning trade in debt default insurance.A ban, subsequently played down in Berlin, would be opposed by companies that buy CDS to cover risk and is unlikely to get a green light.Nonetheless, Papandreou's remarks underline the political determination to curb the market betting that some suspect exacerbated Athens' borrowing problems.In an interview with German newspaper Handelsblatt, Papandreou said: "Angela Merkel, Nicolas Sarkozy, Jean-Claude Juncker and I have suggested in a joint letter to Barack Obama whether the markets for credit default swaps ... should not be closed. The G20 countries want to discuss this."Government sources in Berlin denied that any such letter from the German Chancellor, the French President and Luxembourg's Prime Minister had been sent to Washington.In October, the European Commission, the EU's executive body, will draft new rules for buying and selling credit default swaps, part of the largely unchartered $600 trillion derivatives market that ballooned ahead of the global financial crisis.Diplomats are also negotiating new rules for hedge funds to force the secretive industry into handing over swathes of closely guarded investment information to supervisors and putting them under the watch of a new European watchdog.European finance ministers will meet in Brussels on Tuesday to hammer out an agreement on tougher controls for hedge funds and private equity.Britain has long sought to water down those rules although it is now possible that Germany, France and other countries will overrule London in a vote later this year, forcing through the stricter regime.The political momentum does not favour Britain, which is home to Europe's top financial centre.Politicians and others have repeatedly rounded on a "wolf-pack" of speculators for exacerbating a crisis that European leaders sought to defuse last week with a $1 trillion aid package for its most indebted countries.But winning back investor confidence is proving hard. The euro hit a four-year low on Monday and gold rose after a sell-off on Friday in European companies' shares, credit default swaps and some government debt."The problem isn't evil speculators but your classic long-term investors who are either taking risk off the table or are not interested in buying as much," said Gary Jenkins, head of fixed income research at broker Evolution Securities.If regulators ban the use of CDS, then the market's aversion to government risk will be reflected in the cash bond market, said Mehernosh Engineer, a credit strategist at BNP Paribas."They are trying to mask something that's apparent and that was not caused by the CDS market," he added. "(A ban) would be a huge error. All it would do is spook the market."(Additional reporting by George Georgiopoulos in Athens; Editing by Susan Fenton)News posted by www.newsinfoline.com
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