Greece’s major parties agreed yesterday to form a national government that will oversee elections after putting in place a fiscal deal. George Papandreou will step down to make way for a new PM that will be picked under common agreement. The administration is hoping to agree on the details of the new government today, including the appointment of specific ministers. This is ahead of a meeting of euro zone finance ministers in Brussels that is expected to discuss Greece’s next aid payment. There was some talk overnight that former ECB Vice President Luca Papademos is the favorite candidate to lead the new government.

The news of a national unity government in Greece helped push the euro to highs of $1.3837 versus the dollar. However, it has since slipped back from this level as markets remain concerned about the overall sovereign debt problem, with Italian bond yields rising to fresh highs last week. Markets are likely to remain dominated by euro zone events again this week, though the Bank of England should be in the spot light later in the week when it holds its monthly policy meeting. However, having announced last month that it was to embark on a further round of asset purchases, no change is expected in either official interest rates or the amount of quantitative easing. On the data front there is little in the way of fresh data in the US, though last Friday’s encouraging non-farm payrolls report could boost interest in Thursday’s weekly jobless claims report. Meanwhile, in the euro zone, following last week’s surprise ECB rate cut markets will be watching numbers for any signs that the region is heading back into recession. The comments from ECB speakers over the week will also be of considerable interest as markets attempt to judge the likelihood that the ECB will cut rates again in December.