Greek PM George Papandreou won a confidence vote and will seek a coalition government. The head of the new government is likely to be Evangelos Venizelos, current Finance Minister that would call elections once negotiations for the new bailout are concluded. Papandreou defended the canceled referendum arguing that Geeks would have voted yes.

The outcome of the Parliament vote avoid Greece a cancellations of talks with EU leaders and, what should have been, chaotic elections, amid a strong economic crisis.

Greece political uncertainty still reins despite the confidence vote. The new government needs to be form and negotiations secure, to receive the next tranche of financial aid. The country is fighting to avoid a default or even a scenario that includes Greece leaving the Eurozone. Mora analysts are now considering that possibility as economic problems worsen and times runs out.

If form, the new government will face difficult tasks. Initially will have to secure the deal and implement the reforms. Many Greeks oppose more austerity measures and policy-makers will have to find a way to gain popular support in order to increase credibility about the new plans.

“The composition of the Greek government is not that important. The Greek government is not really in charge of fiscal policy anyhow; Greece has largely ceded its sovereignty to the troika, which will be setting up shop in Athens going forward. It is only crucial that any government in place is willing to approve the second bailout package so Greece can receive its next tranche of funding before €8bn in debt comes due in December, thereby avoiding a disorderly default,” said Megan Greene, economist from Economistmeg.com. According to her, even if the government passes and implements the second bailout package, the endgame for Greece is unlikely to change: “Greece can either undergo a decade of recession/depression to regain competitiveness or it can exit the eurozone and reissue the drachma. The latter option would be painful, but would allow Greece to regain competitiveness almost overnight and return to growth in a matter of months.”

On the political spectrum, once negotiations concluded, national elections are likely to take place after February. Papandreou said that he was going to visit on Saturday the President and inform him of his willing to negotiate and create a unity government.

G20 fails to trigger confidence in markets

During the second day of the G20 summit Eurozone leaders, Barack Obama and ECB, IMF and EU officials tried to reach an agreement on the way to boost IMF's firepower. As the ECB is reluctant to continue its massive purchases of the indebted countries' bonds, emphasizing that it is not “a lender of last resort”, EU officials turned to the IMF as an institution which could step in, in case a larger Eurozone economy required a bailout. No agreement has been reached in this respect however, as none of the G20 countries expressed their willingness to participate in boosting IMF resources.

Kathy Lien, Director of Currency Research for GFT sees this as another failure as far as restoring market confidence is concerned: “Talks of IMF involvement in providing additional support to vulnerable economies appears to have broken down at the G20 meeting which isn't good news for the market because it implies that the G20's attempt to calm the investors have failed.

G20 leaders agreed however that IMF together with the EU should exercise quarterly supervision of the Italian economy and the progress in the implementation of reforms necessary to reduce debt. EC inspectors will visit Rome already next week to evaluate the current situation.

The situation of Greece and the possibility of its leaving the Eurozone was another hot topic during today's talks. The president of the EC José Manuel Barroso assured that the EU will support Greece's efforts to stay in the Eurozone if Athens commits to carrying out all the required reforms.

Markets end week lower

The inability of G20 leaders to arrive at a consensus on increasing IMF resources caused stocks, the euro and Italian bonds to drop. Stocks in Europe and in the US finished the week with losses, after being unable to recover of a sharp sell-off that took place on Monday. The Euro also was unable to erase losses and finished mostly lower across the board as problems in Greece continue and market still demands more details of the agreement reached last week at the EU summit.

The EUR/USD finished barely below 1.3800, after dropping to 1.3600 at the beginning of the week. The Euro remained steady during and after the voting in Greece in the inter-bank market.

The G20 failed to deliver concrete announcements and markets failed to climb on Friday, posting weekly losses despite the ECB rate cut and an improvement in US economic data. On Friday the NFP report in the US showed a smaller-than-excepted increase but upwardly revisions of prior months increase hopes, moving away fears of a recession in the US. But the pace of growth remains, as Ben Bernanke mentioned, frustratingly slow while clouds remain over Europe, where the new ECB chairman started its mandate looking for ways to avoid a recession.