BERLIN Germany's go-it-alone attack on risky financial bets may have taken both the markets and its EU partners by surprise, but domestic pressure on Chancellor Angela Merkel to some extent made such a move inevitable.
The European Commission and Paris were peeved not to have been consulted on the overnight ban on naked short selling of some assets, and shaken markets said it came "out of the blue."
But Merkel was under pressure from her own conservative party to push not only for a Europe-wide tax on financial transactions to cover the cost of the crisis, but also specifically for a naked short-selling ban.
"The room for maneuver that Mrs Merkel has is not as big as many people think," Gerd Langguth, a political scientist at Bonn University and a Merkel biographer, told Reuters.
In recent weeks Merkel has been criticized at home for her hesitant response to the Greek debt crisis, evicted from power in North Rhine-Westphalia state and trumped by France's Nicolas Sarkozy on the rescue package for the euro.
Political analyst Franz Decker said the latest initiative showed Merkel was "a fair weather chancellor whose leadership qualities were not seriously tested in her first term in office."
Good external conditions during her 2005-2009 first term at the head of a stronger Grand Coalition with the Social Democrats (SDP) helped her cope with the banking crisis after the Lehmans collapse, he said.
But her current Free Democrat partners "do not provide much support" -- hence her unsure response to the debt crisis triggered by Greece, said Decker.
This time, she had not consulted her EU partners partly because she tended to see things from a German rather than a European standpoint -- unlike her mentor Helmut Kohl or former SDP Chancellor Gerhard Schroeder, he said.
"On European politics, Merkel often approaches things from a national viewpoint, not with the supranational vision shown by Kohl or Schroeder, who sometimes put European policies ahead of national interests," said Decker.
PRESSURE FOR ACTION
Merkel came under pressure from both the public and from politicians on both sides, exasperated at Germany's role as "paymaster" of the EU, to take some action against countries running up unsustainable deficits and against fickle markets.
Volker Kauder, leader of the conservative faction of the ruling coalition in the lower house of parliament, called for a ban on naked short-selling hours before the ban was announced on Tuesday.
The opposition Social Democrats, Merkel's coalition partners until last year, have said they will back the 750 billion euro emergency package for the euro in Friday's key parliamentary vote only if she promises to impose a tax on financial markets.
Conservative MP Thomas Silberhorn, showing that some want even more drastic measures, said he favored a mechanism for debt-laden states in crisis to be declared insolvent and quit the currency union.
"We need to keep this option ..." to leave countries "no other option except to exit the euro zone," he told foreign correspondents on Wednesday.
Merkel has consistently spoken out against "speculators," notably at crisis summits in London and Pittsburgh last year. But analysts say both the tone of her comments on the perils facing the euro, and the timing of the initiative on short selling, were unhelpful in the context of a nervous market.
U.S. Treasury Secretary Timothy Geithner said restrictions on trading were "not good" historically.
"In the short term, such a politically motivated ad hoc regulation should be seen as negative since it alienates market participants," said Close Brothers Seydler's Roger Peeters.
Some areas of the German banking industry came out in favor, public sector banks saying it was "top priority" to restore stability in markets, with Germany leading the way.
FROM GERMAN VIEWPOINT
The EU's executive commission, some EU partners and even some bankers showed interest in seeing such a ban extended to other countries and assets -- but pointed out that this would need closer coordination.
Langguth believed the ban showed that Merkel was "very much under pressure, maybe more than other prime ministers in Europe," not just because of defeat in North Rhine-Westphalia but also because she faces six regional votes next year.
She had had to respond to the widespread feeling that the Greek rescue package, and possible bailouts for others in the euro zone, were a "bottomless pit" for German public money.
But he saw little risk of Germany's underlying commitment to Europe wavering, noting that it had no major euroskeptical party except possibly the far-left Linke.
"Of course at the moment some Germans don't feel as good about European integration as maybe five years ago. But overall the German political elite is still in favor of the European Union and I do not expect any real change," said Langguth.
(Additional reporting by David Brunnstrom and Erik Kirschbaum; Editing by Tim Pearce)