Greek itch falls low on European markets' worries: SocGen

Patrick Legland of Societe Generale explains to CNBC-TV18 that the key concern across European markets is not the Greek crisis but the looming threat of a political gridlock in the US Senate which could hamper resolution of the fiscal cliff and impede flow of funds into Europe under the QE3 programme.

Below is an edited transcript of the analysis on CNBC-TV18 Q: What are you expecting from Greece today? Do you expect it to scrape through or will the parties find it difficult to get that 154-mark?
A: It is likely that Greece will certainly remain a very hot topic. It is highly unlikely that a clear decision will emerge today.
But to be frank, I am unable to fathom why the markets are so concerned about Greece at this stage when there so many positive pieces of news in the last few days.
The re-election of Obama has ensured that Europe can continue to have a loose monetary policy which will be very, very positive for the financial markets. There are also other positive developments across Europe and in France and all this positive news is supporting risky assets. Q: What would be the probability of the Greek Parliament not agreeing to the austerities? Is the market factoring in that possibility?
A: To be frank, there is a certain probability that Greek will not take a decision today and austerity will not be approved. But I am not so sure if it is still a significant market concern. By the way, most of the markets right now are up despite the discussions on Greece, but I am not so sure if it will really be a break to the risk-on environment. Q: Just on the back of the US election verdict that we have got, do you see this as a mild relief rally, one which will perhaps stop in a few days after moving up a little bit or do you see a lot of investors actually pumping in money on the back of continuation of the easy monetary policy under Obama?
A: I think on one side it is certainly supporting the US equity market, because this loose monetary policy obviously is very positive for risk assets.
But obviously the market is going very, very quickly to focus on who will gain in the US Senate, because obviously if the Republicans gain majority it will lead to a kind of coalition which would be very negative or very difficult to resolve the fiscal cliff. So the continuation of the short-term rally depends on what happens in the Senate. Q: Spain has taken a bit of a backseat. Yields were down on Tuesday. There were some supportive PMIs, but largely there has been no vote from Rajoy. Do you think the markets sort of discounting that scenario that at some point there will be a bailout request What are you watching out for in Europe in the near-term?
A: You are right. The market expects that at some point Spain will ask for a bailout, but what needs to be taken into account is that ECB is clearly acting as a very powerful backstop for Spain.
We know that if Spain starts to have trouble in refinancing itself with higher yields, the ECB will immediately intervene. Our forecasts show the GDP to be down at minus-0.5 percent in 2012. This is extremely worrying. It has become impossible for European governments to reduce debt without increasing growth.