France wants sovereign CDS banned

PARIS – French Economy Minister Christine Lagarde said on Sunday she personally believed that derivatives on sovereign debt, such as credit default swaps (CDS), had to be either tightly regulated, limited or even banned.

CDS, which are used by investors to hedge against the risk of default by a borrower, together with other derivatives, have been the subject of mounting criticism as they may have helped conceal Greece’s debt problems. The Federal Reserve and securities investigators are currently looking at how Goldman Sachs may have helped Greece disguise the size of its budget deficit though the use of derivatives. Lagarde had previously called for better regulation of the market for sovereign credit default swaps but had stopped short of suggesting a ban. ‘I think that derivative products… the CDS on sovereign debt have to be at least very, very regulated, rigorously regulated, limited or banned, this is a personal position on financial instruments,’ Lagarde told Europe 1 radio. Lagarde said she had no doubt Greece would be able to refinance its debt with the help of public, private funds or both.Revelations that Greece’s deficit was three times bigger than originally forecast has plunged the country into a debt crisis. A German member of European parliament said on Saturday that Germany, France and the Netherlands planned to buy Greek bonds to help Athens refinance its debt.’I have no doubt that Greece will be able to refinance itself, using means which we are currently exploring, and for which we have a number of propositions,’ Lagarde told Europe 1.’It would involve private partners or public partners or both.’ Lagarde declined to give more details on the matter. She added it was ‘out of the question’ that Greece would leave the euro. – Nampa-Reuters