Greece flag
Greek flag REUTERS

Greek banking stocks have surged by 20 percent Thursday, as investors reacted to private reports that voters will elect a pro-bailout government in the national elections this weekend.

The Greek bank stock index is currently just over 20 percent higher at 218.1 at 1030 GMT.

Greek law forbids the publication of opinion polls in the two weeks before elections but according to reports, secret opinion polls show that a government favourable to the international bailout agreement was likely to emerge after the June 17 election, which has catalysed the rise in Greek banking stocks.

Greeks are set to vote for the second time in two months for a new government, after the May 16 election led to an inconclusive ballot, which left no party with enough Parliamentary seats to form a government. Coalition negotiations subsequently collapsed, after voters snubbed the larger parties and instead favoured smaller, mostly anti-bailout groups on the right and left of the political spectrum.

Over the last two months, market participants raised concerns that there will be a repeat of the same voting pattern as before, especially when another set of secret opinion polls published ahead of a two-week pre-election ban showed that no party was likely to win enough votes Sunday to form a government on its own.

In early May, the Greek bank stock index was down by 19 percent.

If the Greeks vote in an anti-bailout government, the concerns are that the country would most likely default, be pushed out the Euro and subsequently prolong its five-year recession and have serious repercussions across Europe.

"[An] exit would be economically ruinous for Greece (we estimate a decline in GDP of 25-50 percent)," said analysts at Société Générale (SG). "For the Eurozone, any Greek exit would have a negative impact, but more than that, it would dramatically reduce the time available to sort out the shambolic architecture that is threatening the system."