Private debt holder upbeat on eurozone future

There are tentative signs of an improvement across the eurozone in three key areas — the banking system, sovereign debt, and politics — that will ensure the survival of the single currency, says London-based, senior vice-president of Franklin Templeton John Beck.

Franklin Templeton is the California-headquartered investment fund that holds over €6bn of Irish government debt — making it the biggest private holder of Irish sovereign debt.

Mr Beck remains bullish about the prospects for the Irish economy, although less so about other periphery members.

“For some countries, we would still be very cautious. We think there are significant reservations over Greece, and probably over Portugal, and a question mark whether the outright monetary transaction is perhaps beginning to resolve some of the problems in Spain,” he said.

“But for other countries where the debt-to-GDP ratio has been more stable, where the fiscal position has been less in deficit, for example in Ireland or in Italy, there are all grounds for optimism. We think some of the peripheral economies now do offer some value.”

The ECB announced an outright monetary transaction programme last month, which pledged to buy unlimited amounts of short-term debt of beleaguered member states. This was hailed as a gamechanger.

Moreover, last December the ECB announced the first long-term refinancing operations programme which committed €1bn in medium-term funding to eurozone banks. Mr Beck also notes that the Netherlands recently returned a pro-EU government.

There are still many challenges facing the eurozone, and growth will remain subdued for the next few years, but there are grounds for cautious optimism, says Mr Beck.

“In the last two to three years we have stumbled from one crisis to the next crisis and hoped for resolution that was never really ultimate and forthcoming. So we hope for a quiet period where we don’t have to look forward to an election, or vote, or disaster, or the necessity of a midnight finance ministers’ meeting,” he said.

“We hope we can actually go back to some perhaps slightly more normal degree of relative spreads between sovereigns that reflects their credit fundamentals rather than the fundamentals of panic and liquidity.”