European Union countries presented plans to curb the short-selling of government debt and shares

European Union countries presented plans to curb the short-selling of government debt and shares Tuesday, as the bloc edged closer to tighter controls on speculators many blame for compounding the credit crisis.

The proposal, to allow a European watchdog to halt some trading and impose restrictions on the short-selling of state debt and company shares, will be the basis for negotiations with the European Parliament, which is demanding stricter rules.

The regime will require investors to reveal big short-selling positions to regulators and empower an EU watchdog to ask for sensitive information and temporarily stop short-selling. EU countries will, however, be allowed veto such a ban.

If both parliament and EU member countries reach agreement, the law could be in place by the end of this year.

"We had major issues particularly with Greece where clearly there were significant (market) movements totally unidentified," France's Christine Lagarde told a meeting of European Union finance ministers in Brussels.

"We are trying with this piece of legislation to remedy that situation."

Gyorgy Matolcsy, the Hungarian finance minister who brokered the agreement between the EU member states, said: "The compromise delivers on the key objectives of transparency, a permanent ban on naked short-selling and the reinforcement of supervisory authorities."

Although he highlighted a ban on naked short-selling, where the seller does not own nor has borrowed the shares he has promised to sell, traders will still be able to do so, provided they show a reasonable chance of getting the securities to close the deal.

The European Parliament wants to take a harder line by including a measure to ban outright "naked" selling of default insurance or credit default swaps (CDS) for country debt. But EU member states are unlikely to back this and some EU officials expect a compromise to be agreed.

Naked selling refers to buying a CDS contract, a type of tradeable insurance to cover default, without owning the underlying government debt.

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