Michael Hasenstab has held up Ireland as a positive example which the eurozone and the US must follow in order to tackle their on-going debt problems.
The Franklin Templeton bond manager – who has an overweight allocation to Irish debt in his multi-billion dollar portfolio – described the Irish methods to tackle its debt as an ‘ideal prescription’ for sovereign debt difficulties.
‘What’s been happening in Ireland is positive. The country, despite facing great adversity, continues to make progress on fiscal reform, and is increasingly getting recognition as a model for other countries,’ he said.
Hasenstab said the county had combined pro-growth and pro-austerity packages, where growth is aided through structural reforms and competitiveness, while austerity is achieved through fiscal responsibility.
‘While there is still progress that needs to be made, I think the fact that Ireland was able to regain international bond market access after years of not being able to, is a clear sign that it is getting credit for a lot of the progress it has made,’ he said.
‘I believe the Irish model could be an ideal prescription for problems in the other parts of Europe. And hopefully, even the U.S. could look a little bit deeper into what the Irish have done and try to emulate some of those policies.’
While Ireland is a model student for the rest of the debt burdened nations, Hasenstab said he is not getting carried away about the current immediate investment climate.
‘We need to be realistic. In our view, conditions in Europe are going to be troubled. Deleveraging is painful, and growth is likely to be very weak, but that doesn’t equate to an Armageddon scenario,’ he said.
Hasenstab said he anticipates a very difficult environment for growth but does not expect the eurozone group to splinter or collapse.
He did add that, at present, he believes some of the biggest opportunities in Europe are outside of the eurozone – in central and Eastern Europe.
‘These countries are benefiting from the massive quantitative easing that’s going on in the eurozone; they are recipients of fairly large capital flows and at the same time these countries don’t face the massive deleveraging that is being experienced in many cases in the eurozone.’
The Templeton Global Bond I (acc) EUR has returned 43.74% over the past three years. This compares to its Citywire benchmark, the Citigroup WGBI TR USD, which rose 28.88% over this period.