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By Miriam Sjoblom, CFA | 06-20-2012 02:00 PM

Hasenstab: No Armageddon in Europe

Markets are being too short-sighted about the European crisis, as recent stress may actually stir policymakers to enact meaningful change, says the Templeton Global Bond manager.

Miriam Sjoblom: Hi. I’m Miriam Sjoblom, associate director of fund analysis at Morningstar.

I’m here today at the Morningstar Investment Conference with Michael Hasenstab, who is one of our keynote speakers this year at the conference.

Thanks for joining us, Michael.

Michael Hasenstab: My pleasure.

Sjoblom: We have seen a succession of scary headlines out of Europe over the past several weeks, and there has been a lot of market volatility as a result. Can you share some of your perspective about what’s going on, and what's the market getting right and what’s it maybe misunderstanding?

Hasenstab: I think the big problem with the market is it’s too short-sighted. We really need to look a little bit further out and see the situation.

So, core to our view is that we do not believe in the Armageddon scenario for Europe. We don’t believe that the Bundesbank is going to start printing Deutsche marks. We don’t believe that Italy will have a credit event.

Now, the problems in Greece, I think, are going to continue. There is going to continue to be a lot of volatility, but in some sense, the volatility and the market dislocations are actually a good thing in that they're the only thing that motivates politicians to actually get something done.

So, we have seen Italy continue to make fundamental steps towards labor reform. We have seen Spain make fundamental steps towards reining in regional-level budgets and move towards bank recapitalization; yes, it was three years too late, but better late than never. We have seen the EU start to come together and talk about a fiscal union plan, which ultimately is the necessary prerequisite for the survival of the euro.

So, some positive steps are being made--granted they are reactive. They have been too late, but they are starting to happen. So, we don’t think the whole system needs to implode, although conditions will be very troubled for quite some time.

Sjoblom: So, it sounds like you are seeing some encouraging signs that maybe aren’t garnering a lot of headlines, but your fund has had minimal exposure to the eurozone for quite some time. But how do you evaluate the linkages between Europe and the rest of the globe, and how a more severe escalation of the crisis in Europe could impact your portfolio?

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