Markets have put Greece woes behind for now: StanChart

Sarah Hewin of Standard Chartered says markets have largely put Greece woes behind it at the moment. "We have seen the peripheral debt markets rallying since Mario Draghi announced the new bond buying plan from the ECB," she told CNBC-TV18 in an interview.

A lot of newsflow is expected out of the region shortly. The euro area finance ministers will discuss the Troika's report today. There could be some indications about what that report says. The Greek budget will be presented in the parliament. That will be taken on the austerity measures by next week. So the political noise increase is going to stay important.
"Overall, the mood from the political level for now, is trying to find a way to sort of keep Greece on track," Hewin said.
Euro area labour market figures due out later could affect sentiment, with another increase in the unemployment rate expected for September. Below is the edited transcript of the interview Hewin's interview on CNBC-TV18. Q: The European Union (EU) has convened a meeting to relook at Greece's bailout plan to check out if another debt write-down is needed. Is Greece on-stream or is there still that exit fear lurking somewhere maybe 2 percent or 5 percent?
A: The markets have largely put Greece to the back of their minds at the moment. We have seen the peripheral debt markets rallying since Mario Draghi announced the new bond buying plan from the ECB. We remain concerned that there are still potential problems with the Greek package. Now, there seems to be a move to delay the deficit reduction target for a couple of years. But that’s inevitably going to mean that new finance has to be found from somewhere.
There have been various suggestions proposed about how this might be achieved through some sort of further write down of officials debt. Of course the private sector debt already went through restructuring, back in March, so the scope is to focus on officially held debt. But in Germany, there is a lot of resistance to providing additional funding even though from the government side there does seem to be support to allow more flexibility for Greece.
_PAGEBREAK_ Q: What are you watching out for in Europe? Greece if not on top of mind, Spain of course Rajoy doesn’t give any clear indication of whether they are asking for aid. So what does watch in the near term?
A: In the near term, Greece will be interesting to watch. We have the euro area finance ministers discussing the Troika’s report today. We may get some indications about what that report says. We have already outlined the Greek budget which will be presented to parliament today. That will be taken on the austerity measures by next week. So the political noise increase is going to stay important.
The Troika’s view of the Greek situation—any news that we get on that—will be significant as well. For Spain, in particular, it’s an ongoing question about whether they will make a request for additional funding. For now, borrowing costs are low so they are not in a position where they are forced to do that, but they may want a lock in, low borrowing cost in the next year. So that’s going to be quite a key. 
 
Q: There are also concerns about Italy about Silvio pulling out of Monti’s government. Do you think those fears are exaggerated? You won’t worry much about Italy at this point?
A: It is interesting that Berlusconi threatened Mario Monti’s government. But we saw the party’s secretary distancing himself from Berlusconi’s remarks. But, it has raised awareness that Italy’s general election is on the horizon and that it will be in next spring. There are going to be increasing threats to the technocrat government, plus more resistance to following through on the austerity measures that the government has already introduced. We saw over the weekend quite strong gains for the anti-austerity party.  They are the five star fringe party. To the extent that they can repeat that to the national level, that could pose a threat to the confidence in Italy. Q: Do you think the markets are being too complacent about Greece. There was this fairly significant rally from June to September; more so in the last part of September after Draghi made those comments. Is the market being complacent or is it correctly guessing the powers that we won’t allow Greece to slip?
A: There is a sense that, there is more support for Greece to stay within the euro area and at the same time there are some kind of significant decisions that have to be made through new financing. On the Greek side, there is no agreement amongst the coalition about the austerity measures. So, there could be potential upset there. I think overall the mood for now from the political level is, trying to find a way to sort of keep Greece on track. They have made some quite significant changes. They are introducing reforms and in my view though the big question marks would really arise in the first quarter of next year, when the program has to be assessed again.