This paper is at odds with the European Commission's current draft regulation which imposes restrictions and reporting requirements on sovereign CDS.

Commenting on the leaked reported Syed Kamall, Conservative MEP for London who is the key ECR Group negotiator in the European Parliament for the Short Selling Regulation, is "concerned that the Commission has not considered the findings of its own paper when drafting its Regulation on Short Selling and Credit Default Swaps" and even worse, the Commission never made its research public.

Syed Kamall MEP for London said: "It is hardly surprising that the European Commission kept a tight lid on this paper - it goes against its own legislation. In a nutshell, the paper says that restrictions on credit default swaps of sovereign bonds is bad policy. Yet this is exactly what the Commission regulation is pushing for.

"I have been arguing since the beginning of this debate that without credit default swaps on sovereign debt, yields will rise increasing the cost of government borrowing. The Commission's leaked paper reaffirms this position. It is a shame the Commission did not listen to its own experts when drafting legislation.

"The Commission has adopted a policy position that its own specialists have rejected. It is wrong that they suppressed these views. We need greater transparency within the Commission.

"With rapidly rising bond yields in Ireland, Portugal, Spain and Italy, we certainly should not be adopting policies that could make these yields rise further and increase the cost of government borrowing during a crisis. Commission's proposal could make it much more difficult for governments to raise money. Higher bond yields would cause serious harm to Europe's peripheral nations who are already struggling.

"Over the past weeks we have seen the negative effect that EU policy fiddling has had on Ireland, Portugal and Spain. This is no time to tinker around with EU financial policy for political ends. Th ends. The stakes are too high."