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By Jeremy Glaser | 08-19-2011 12:17 PM

Globally Focused Firms Best European Bets

Given the slowdown in European growth, firms that have strong global operations look like the best values today, says Templeton's Gary Motyl.

Jeremy Glaser: For Morningstar, I am Jeremy Glaser. What impact is the European sovereign debt crisis having on both European economies and individual firms? I'm here today with Gary Motyl. He's the chief investment officer of Templeton Global Equity Group. We're going to talk a little bit about some of these issues. Gary, thank you so much for joining me today.

Gary Motyl: Good morning, Jeremy. Thanks for having me.

Glaser: So, my first question is really about the sovereign debt crisis which seems to keep cropping up, and we keep hearing more bad news. We keep hearing more plans. What do European leaders really need to do to solve this crisis and to really start focusing on growth again?

Motyl: The European leaders probably need to do what the U.S. leaders need to do, and that is, start getting serious about fiscal discipline.

Glaser: What kind of steps do you think they need to take? Does it involve kicking out some of the peripheral members from the eurozone? Does it involve defaults? What are some of the strategies they could use?

Motyl: To a certain extent, I think some of the concerns are a bit overblown because when you look at the statistics, whether it's the debt/gross domestic product ratio staying or the tangible book value of the banks involved, again, there is a significant amount of strength there. But the markets are worried that you're going to see some type of repeat of 2007 and 2008. We think that Europe does have the financial wherewithal to make it through this period, but again, it is going to take some pretty serious steps to get their individual countries' fiscal houses in order.

Glaser: So, would you expect to see the kind of trauma in terms of bank closures or huge recapitalizations that are needed in the financial sector from the sovereign debt crisis, or do you think that they're kind of appropriately capitalized and will be able to move on from here?

Motyl: I think given the current situation, it's probably as much a question of liquidity, providing the liquidity on a short-term basis to make sure that a particular bank or a particular country can avoid missing payments or defaulting. I mean, it's a very serious problem, but again, I think when you look at the underlying assets, whether it's individual countries or individual companies, there's still a lot there to be reasonably comfortable with.

The question is, can they do something in the short to intermediate term to make sure that the payments are made, that loans are able to be redone. So, it's a matter of can you keep the liquidity situation such that it does not lead to a real problem with the real economy.

Glaser: So, when we talk about the real economy, what impact is the sovereign debt crisis having on corporations? Are they investing less? Do you see retrenchments or building up of cash on balance sheets? What has been the corporate response to the crisis in Europe?

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