BNZ currency strategist Mike Burrowes said it looked as if the 75-year-old Berlusconi would be lucky to remain in power for the rest of the week, and if the vote were not passed austerity measures aimed at getting the eurozone's third largest economy back on track would be thrown into doubt.
George Papandreou - Greece's embattled Prime Minister, who plunged markets into turmoil last week when he raised the prospect of putting a hard-won rescue package for the country's faltering economy to a public vote - will not be part of the new government agreed to in Athens yesterday.
The two main political parties have settled on an early election date of February 19.
Kevin O'Sullivan, head of financial markets at Auckland brokerage OMFinancial, said that despite a change in political leadership the country's problems had not gone away and a Greek default still looked likely.
"[The new government] doesn't provide much reassurance at all," he said, adding that nothing positive came out of the G20 meeting held in the French city of Cannes over the weekend.
Burrowes said the agreement Greece's politicians had reached on the formation of a unity government was encouraging.
"But we probably need some clarity on it in terms of who is going to be the leader of the new coalition government," he said.
Burrowes said he expected Europe's rescue plan, announced late last month, to eventually be implemented, which would ease the eurozone's debt crisis.
With global growth stabilising, focus would return to New Zealand's strong domestic fundamentals, prompting the markets to expect an increase in interest rates, pushing the kiwi towards US83c by the end of the year.
"We're picking a peak of around US87c by September [2012]."
ASB, however, is more bearish and has revised its interest rate outlook as a result of "further setbacks" in the eurozone crisis.
The bank has pushed its expectations for the first official cash rate from the Reserve Bank increase forward from March 2012 to June.
ASB economist Christina Leung said hopes were fading that Europe could avoid a "messy default scenario".
"Last week's developments in Greece [Papandreou's call for a referendum] highlight how easily rescue efforts can be set back," she said.
"Meanwhile, Italy, the country that is considered too big to bail out, appears to be on increasingly shaky ground.
"The ongoing uncertainty has led to a rapid rise in Italian bond yields, close to the point where borrowing costs become unmanageable and put further pressure on debt levels."
She said brinkmanship from politicians and slow decision-making had caused unnecessary volatility in markets.
"The global economy is sitting at a crossroad."
On edge
* NZX-50 up 0.3pc
* ASX 200 down 0.2pc
* Hang Seng down 0.5pc
* Nikkei down 0.4pc
