The end of this year also sees the end of a very cosy and lucrative arrangement for the life insurance companies. On 1st January 2013 wide ranging changes into the selling and advising of investment products will be introduced by the financial regulator.  The RDR (the Retail Distribution Review) Revolution will ban commission and require advisers to be qualified to a higher level than previously.

This is not popular with the insurers, and it must be said many advisers, as they are used to control the sale of their products by paying commission. The higher the commission, the higher the number of sales. Unsurprisingly, the FSA has concluded that this is not in the interests of investors and it has hard to argue otherwise.

However, the insurers have been fighting a spirited rearguard action to retain at least some of the present arrangements. Of course, this always dressed up as being in the interests of the public. The latest wheeze in their PR campaign is that their systems are not able to cope with the changes and will, instead, mean that they will rip people off post RDR. So, despite these huge institutions having and several years of consultation about the new world order, they are ill prepared and the public should continue to 'benefit' from the old regime.

I have had the unpleasant experience of dealing with insurers for twenty-five years now and, as a group, they have been unwilling to make investments in IT, preferring instead to penalise their policy holders by forcing them to remain in expensive and inflexible pensions and investments rather than allow any benefit of new technology to apply across the board.

I'm no fan of banks but it is hard to imagine them refusing access to a cash point machine to existing customers, making them available only to new account holders. I very much hope that the FSA kicks the insurers into touch, asking instead why they may not be prepared for RDR

Well, it would seem that the short answer is, yes.  A quick check of the benchmark 10 year gilt shows its price to be down by a mere 0.01% (less than on a couple of days last week) as of this afternoon.  Hardly earth shattering.  Of course, it’s is entirely possible that everyone in the market had the day off for Valentine’s Day but Moody’s, the ratings agency, must wonder whether anyone cares what it thinks.

I don’t think they do and most people seem to agree with me.  You have to wonder why Moody’s have bothered and it must be for the publicity.  It can’t surely have just occurred to them that the UK and a few other countries are racking up debt, can it?  If so, it makes them sound like they are a bit behind the curve.  Anyway, the major buyers of Gilts are the British Government, via the Bank of England, UK banks and UK insurance companies, all of which have to, really.  So, a bit a warning has no effect.

For those who want to lend money, borrowers fall into three categories; those you wouldn’t touch with a barge pole (think Greece), those to whom you love to lend (UK and US governments, amongst others) and those who won’t borrow (bigger companies).  So there’s precious little choice.

There seem to be no periods of certainty for investors, just periods when we delude ourselves that all is well when actually it is going badly wrong behind the scenes, followed by discovery that is was all going wrong, followed in turn by a period when it is seemingly put right but when we are actually busy sowing the seeds of the next crisis.  Cynical, perhaps, but there is some truth in it and it pays to bear it in mind.  The year ahead doesn’t present any greater challenges than in the past, it’s just that we are more focussed on them than in the past, certainly prior to 2007.

It’s quite rare for there to be so many different problems swirling around at any one time but, in truth, there is only one problem and many potential consequences.  The big issue is how will indebtedness be dealt with and what impact it will have.  Mostly, the real problem lies in the Eurozone because its problems are new and investors seem to hate uncharted waters.

Japan, the United States and Britain have huge sovereign debts but, comparatively speaking, investors are not overly worried.  These countries print their own money so have no need to default on either the interest payments or repayment of the loans.  They can also control their interest rates, to an extent, and will just juggle inflation and recession as they pull themselves back to the comfort zone.  They have also been here before during war and peace, boom and bust so there’s nothing new going on.  Their banks hold loads of their debt so the banks won’t go bust in a hurry, either.  Not again, anyway.

As we all know, the sceptics have been proven right about the Euro and if its members want to preserve it, they are going to have to make some unpalatable changes.  This is a problem for everyone because the Eurozone lies at the heart of the biggest single market in the global economy and it would be better for us all if they could sort themselves out sufficiently to start boosting it.

The answer for the Eurozone is quite simple; it has to be run like a unified economy.  There has to commonality of tax collection, and its effectiveness, and removal of restrictive practices.  There has to be shared responsibility for all aspects of the Zones finances, including debt.  Also, there has to be a transfer of wealth from rich areas to poor areas, as happens within all developed countries.  The UK would cease to function if tax receipts from London and the South East were not spent in poorer areas, such as the North West.  If that doesn’t happen, the poor areas borrow to keep up with the rich areas and eventually can borrow no more, especially if they haven’t done enough to improve their ability to earn.  When you live in one country, there is a sense that we’re all in it together (excepting the Scots, that is) and we do our best as a group to help others along.

Without wishing to pick on any Eurozone members in particular, they clearly do not feel that they are part of one entity and that they are in it together.  Members of poorer economies were allowed into the glamorous shop (mainly) owned by their richer neighbours and wanted to keep up with them, buying nice new BMWs.  They didn’t really have the funds so they borrowed and were encouraged to do so.  Unfortunately, no real attempt was made to tackle competitiveness, tax collection and restrictive practices, which could have helped to solve the need to borrow.

The Eurozone will only work if the members, particularly the richer ones, decide that they are really part of a unified entity and that they are in it together for better or for worse.  The latter for quite a while, I should think.  If they can’t face that, get on with an orderly breakup sooner rather than later, I’d like to see them try.  In my view, the best option would be to accept what they have always wanted to avoid acknowledging about currency union, that it can only exist where every other financial element is unified.

To paraphrase Churchill (the politician, not the insurance company); you can always rely on the Germans to do the right thing – once they have tried everything else.