UFO Info Week-End

Whether the single currency could withstand such action is an interesting question

Whether the single currency could withstand such action is an interesting question. Where the Stability and Growth Pact, largely controlled by the politicians, has failed, the ECB hopes to succeed. One way of achieving this would be to refuse to accept the sovereign debt of recalcitrant nations as collateral.The existing list of eligible collateral doesn’t include anything rated by the credit rating agencies at below A minus. Not even the main offenders – Greece, Italy and Portugal – are yet as low as this, so as things stand proposals to enforce the principal are largely meaningless.Yet the threat does provide a useful way of firing a warning shot across the bows. This is in turn underpinned by the stability and growth pact, which is meant to discipline governments into keeping their borrowings under control.With the pact now being overtly flouted all over Europe, the ECB has been looking at ways of imposing its own disciplines, and in doing so it has come full circle back to the idea that there may be some merit in market mechanisms after all.

If there were significant differences in rates, there would be arbitrage between nations (borrow in Germany but lend in Greece), which in time might cause the currency union to collapse.The European Central Bank helps sustain this convergence of rates by making no distinction between nations in accepting sovereign debt as collateral for providing liquidity. In order to have a currency union among countries, you also require a single interest rate This applies as much to long-term rates as short-term ones. However, neither of these outcomes look very likely, and with a bit of luck Standard should be able to use its SIPPs success as a key reason to buy in next summer’s £4bn IPO.Europe’s diverging interest ratesQuestion. Would you rather hold your money in German or Greek national debt? Alright, so neither really, and with the interest rate so derisory, who in their right mind would? Yet given the fact that the rate is essentially the same, most of us if forced would opt for the obviously safer bet of Germany.Market mechanisms would normally force the Greek government to pay far more interest on its debt than that of Germany, this to reflect the greater risks of outright default, or default by the backdoor, otherwise known as currency depreciation.The fact that there is scarcely any difference at all is down to the convergence brought about by the introduction of the euro.

Perhaps surprisingly, given the recent record, Standard finds itself far and away the market leader in this relatively high-margin product category.Yet even Standard Life cannot live by Sipps alone, and by putting so much emphasis on this “wrapper” investment product, the company makes itself vulnerable both to another mis-selling scandal – as things stand, Sipps are unregulated – and with pension reform in the air the possibility that government might clamp down on their tax advantages. For years, Standard Life was the independent financial adviser’s friend,because of the generous commissions it would pay for new business. Now it is the meanest kid on the block, foregoing much of the business so expensively bought in the past. Standard Life is having to shrink to survive and to prepare itself for the disciplines of stock market life.But not in all departments. Please don’t look at sales of traditional pensions and savings products, says Mr Crombie.

Instead concentrate on the new mandates we are winning in fund management and in particular on the growth in sales of self-invested personal pensions (Sipps), which are now outstripping individual pensions as the group’s biggest seller.Sipps are the latest big thing in the savings market, and with the further loosening of investment rules due to come into effect next April, they are set to become bigger still in Standard’s view. With the meltdown in the life fund and the consequent, looming stock market flotation, they have had to change their tune.Out the door goes growth for the sake of it, as too do high commissions for low-margin business. Yet Standard Life’s chief executive, Sandy Crombie, was yesterday trumpeting his continued loss of market share in the third-quarter numbers as a matter of some personal pride.To understand the reason for this apparent outbreak of madness, you need to know where Standard Life is coming from. As a mutual, Standard Life hasn’t had to care too much about the usual financial disciplines of return on capital, margin and profit. With no shareholders to bring them to account, directors instead judged their success only by growth, to which bonuses were directly linked.