Need to control swaps, says German Merkel

George-Papandreou-Angela-MerkelIn her meeting with Greek Prime Minister George Papandreou, German Chancellor Angela Merkel lauded the austerity efforts of the former and shifted the focus saying Greece doesn't need financial aid.

Merkel instead expressed her desire to restrict the use of derivatives that exploit a nation's budget deficits, in this case Greece.

"Credit-default swaps, where you insure your neighbor's house just to destroy it and make money from it, that's exactly what we have to curb," Merkel said speaking along with Papandreou. Merkel said that his country would bring this matter to European Commission's attention and also at the next G-20 meeting.

Banks on the other hand rebuffed the idea of Merkel and defended the sovereign default swaps market after they were called by the European Commission. ISDA - the industry group also said that such swaps accounts for a very small percentage of government bond trading volumes and there is no question of speculation.

Financial supervisors including The Federal Reserve are investigating such contracts, which can alter market perceptions, thereby making it difficult for countries to borrow.