John Ward – Sarkozy/Goldman/Morgan Stanley Foat Mystery: Is Berlin involved? – 18 April 2012

FOAT experts admit new sector could damage France, aid Sarkozy

Further to The Slog’s post of five days ago about speculation against France on the new French debt futures (FOAT) market, speculation broadened on the French Left over the last 36 hours in relation to the FOAT founder – Deutsche Borse – and whether a geopolitical move by Berlin might also be part of the mystery.

To recap: despite an obvious danger that the new FOAT will allow market-maker Morgan Stanley to hedge its Greco-French exposure to France’s disadvantage, Nicolas Sarkozy allowed the market’s April 16th debut to go ahead. This has created some speculation as to whether Sarkozy plus others may be creating a ‘poison pill’ for Francois Hollande should he win the election.

Now the French Left is beginning to accuse Germany of complicity. Deutsche Börse’s new futures contract, they added, “may promote a self-fulfilling prophecy” and shows that Eurex “anticipates speculation against the French debt at a time when the pressure on the sovereign markets continue to escalate.”

But Eurex dismissed the idea. “With the introduction of this new contract we are responding to the great interest shown among market participants in more customised hedging solutions,” said Mehtap Dinc, Head of Product Development at Eurex.

Indeed, great interest has been shown in FOAT by a wide range of financial institutions. Credit Agricole economist Peter Chartwell today agreed that investors do have the potential to use FOAT contracts to hedge their debt-risk positions, while bond futures analyst analyst Cyril Lei Niya said that, although as expected the 10-year French Treasury bond futures contract got off to ‘a slow start’, a rapid increase in volume was expected “once the first round of Presidential voting completes”.

It has also emerged in the last 48 hours that Socialist Presidential candidate Francois Hollande last week asked the German Federal Financial Supervisory Authority to prevent the Eurex launch, but the Germans had turned his request down flat. One would’ve thought that, under normal circumstances, it would seem at the very least courteous to delay the launch until after the elections. This in turn has fuelled speculation in Paris that the Chancellery in Berlin is happy to weaken France’s financial outlook during the election window, and thus ‘fulfil’ Sarkozy’s prediction that the election of a Socialist would panic the markets…giving Sarko a big boost in the run-off against Hollande. link to original article

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