ECB QE plan brings rare Greek market relief

LONDON: The European Central Bank's pledge to print new money delivered a rare boost to Greek markets on Friday, as investors heaved a sigh of relief that the country had not been excluded from the landmark scheme.

Greek government bond yields tumbled and shares soared on the last trading day before elections that could revive fears over Athens's future in the euro club.

The anti-bailout Syriza party is tipped to triumph in Sunday's vote. The party's demands for debt relief and an easing of austerity have already strained relations with Greece's European partners.

Some ECB policymakers, like Estonian Ardo Hansson, have voiced strong reservations about whether Greece should reap the benefits of quantitative easing.

"Many people thought Greek bonds wouldn't be included at all, that's why markets are quite upbeat. That wasn't priced in," said RBS strategist Michael Michaelides.

Greek three-year borrowing costs have fallen over one percentage point since the ECB announced on Thursday it would follow the lead of other major central banks to try and revive the bloc's weak growth and falling consumer prices with QE.

The main Athens stock index jumped more than 5 percent on Friday, and is up 7 percent since the ECB decision. But Greece's inclusion in the QE programme comes with a host of caveats and, even with the latest fall in bond yields, the country would still pay four times more than Portugal to borrow in bond markets, and nearly 30 times what Germany pays.

Because of Greece's junk credit ratings, the ECB will only be able to purchase its bonds if it remains in an international financial assistance programme.

The final review of Greece's current EU/IMF bailout programme is due to be completed by the end of February, and any additional programme would not be a given with Syriza in charge.

Even if it does enter another programme, the ECB will not be able to buy its bonds until June.

The ECB already holds a large stock of Greek debt under a previous bond-buying scheme and limitations on QE mean it cannot hold more than 33 percent of national issuance at any one time. "It's a QE rally, but nothing has changed fundamentally in Greece," said Lefteris Farmakis, economist at Nomura.

"There are certain constraints -- one of them is that the government continues to play within the European framework, which is a big ask at the moment -- and unless this is resolved then everything else is secondary."