SWEDEN - The Swedish rejection of the single currency was nothing short of a mistake, according to one expert.
Some 56% of Swedes voted against the euro and 42% in favour, following a campaign blighted by the tragic murder of foreign minister Anna Lindh.
But at a seminar in Stockholm prior to the vote, Koen De Ryck, chairman and managing director of Belgian consultants Pragma Consulting, said the euro had had positive effects for pension funds in Europe, including greater transparency,facilitating benchmarking of pension funds against each other. More data is also readily available, and more performance- and risk analyses are now carried out.
Reform in one country has created a momentum to trigger reform within the eurozone. France is one example.
“France of all places, which has been opposed to funded pensions, created the Fonds de Reserve which has put e16bn out to tender,” said De Reyk.
He praised Sweden’s record on pension reform with the establishment of the AP buffer funds for the first pillar.
“Sweden is an excellent example of positive change and can inspire reform in other countries,” he said.
But De Reyk urged that pensions reform in Europe should go further: “The next big project should be pensions.
“Unfunded liabilities are jeopardising efforts to control deficit spending and limiting public debt. This is a risk to the stability of the euro.”
But, he added, governments have taken steps to remedy this, in spite of enormous opposition, for example in France and Austria.
De Reyk went on to examine the euro-effects of pension fund investments. Asset allocation turned full circle between the two periods of 1998 to 2000 and from 2000 onwards. Before 2000 more money was invested in equities with smaller allocations to bonds and real estate; after 2000 this was reversed with lower allocations to equities and more to bonds, real estate and alternative investments.
De Ryck described the effect of the euro on pension fund investments as “significant, but not revolutionary”.
The eurozone has without doubt become the domestic market, with bias to local equity markets disappearing. In the Netherlands and Belgium this has happened particularly quickly.
“The single currency has increased liquidity and transparency of markets and has enhanced competition and fair pricing,” he said.
In fixed income, local bias has also disappeared, though interest rates have not converged due to local differences in credit quality and liquidity.
“Perfect government bond markets” have been difficult to beat by active managers, triggering an increase in passive and enhanced indexing styles of management.
Other trends highlighted by De Ryck are greater correlations among markets, particularly for government bonds and large cap stocks; greater importance of sector rather than country allocations, particularly in oils, pharmaceuticals and consumer products; and the increased prominence of mid and small cap stocks as separate asset classes.
He also pointed to increased cross-border competition among financial institutions, with some firms, formerly dominant in their domestic market, becoming medium sized players EMU-wide.
But De Ryck was cautious in attributing all the changes to the effects of the euro. Changes which occurred had done so against the background of the bear market, which imposed its own disciplines.
But regardless of Sweden’s decision on the euro, De Ryck said European developments would shape Swedish pensions. The Pensions Directive will have to be implemented by national governments, accelerating change and integration, and added to this rulings on unfair taxation by the European Court of Justice have made pan-European pension funds a distinct possibility.
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