Hasenstab: Greek exit more harm than good

1 June 2012 | By Rob Langston

However, Hasenstab, co-director of the international bond department for the Franklin Templeton fixed income group, says its forthcoming election would be a referendum on austerity or euro membership.

He says: “Both will be incredibly painful, but I believe if Greece leaves the euro it will probably create more financial hardship than accepting the austerity that would be required to stay in the euro.

“I think the situation is going to be very volatile. It could break either way.”

He adds: “An important question for investors, though, is really whether the rest of Europe is ring-fenced, should the situation deteriorate meaningfully. (article continues below)

“And I think the answer is yes, the ring fences are in place.”

He says it would take the European Central Bank (ECB) to stand back from action for a Greek domino effect on the rest of the Europe to take place, which the manager does not believe likely.

Hasenstab says a Franco-German fiscal compact would require political compromise, but would set out hard rules over long-term financing being put in place.

He adds: “If that can happen then I think we can have an anchor for the survival of the euro.”

The fund manager says much of the political debate has centred on austerity versus growth, when both are needed.

“There is no getting around control of the finances, which means some form of austerity - which doesn’t necessarily all have to be frontloaded - but over the course of the medium term, there’s no question that government indebtedness needs to be capped and brought under control, so that is an anchor to prevent yield premiums from exploding,” he explains.

“At the same time, though, growth is important and growth doesn’t just mean spending money; growth means liberalising the economies.”

Hasenstab says a numbber of countries have made steps towards liberalising economies, such as Spain and Italy.

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