On May 18, 2010, the German state legislature banned naked short-selling of certain euro-debt and credit-default swaps, as well as some financial stocks because it was believed that “excessive price movements” could endanger the stability of the financial system. In an interview with Frankfurter Allgemeine Sonntagszeitung, Wolfgang Schauble, the Finance Minister at the time, said that the “financial market is only concerned with itself, instead of fulfilling its purpose and financing sensible, sustainable economic growth.” The legislation runs counter to a race to the bottom in which governments relax financial regulation to entice the banking sector. At the same time, however, the American state governments and that of their union seemed like apologists for the industry they are supposed to be regulating. In fact, Tim Geithner, the U.S. Treasury Secretary, did not waste any time in criticizing the E.U. state for the legislation. While doing so, he dismissed the German Chancellor's proposal for a global financial transactions tax (the proceeds of which would go into an emergency fund to divert a collapse of the financial system). To be sure, while the European proposals were a healthy sign of government not enslaved by the money and power of big business, the problem of banks too big to fail still existing was not tackled. Furthermore, whereas Americans may be too insular, the Europeans may be unrealistic in their visions for global regulation. Indeed, many tend to conflate their own union with an international organization.
The full essay is at "Essays on Two Federal Empires."
