Greece's parliament is expected to support Prime Minister George Papandreou's new cabinet in a midnight vote of confidence, a crucial hurdle towards approving the country's austerity package and restarting the flow of bailout funds that are staving off default.
But analysts said the vote of confidence—scheduled for 5 pm New York time—is only the first step and doesn't mean Greece will ultimately go along with the austerity plan, or even avoid default.
"Getting stuff through parliament and getting it implemented are two very different things," David Lea, European analyst at Control Risks said. "If they can get past the confidence vote, it doesn't mean they can pass the austerity plan, and if they pass the austerity plan it doesn't mean they can implement it."
Both US and European stocks rallied on hopes that the confidence vote would pass and clear the path for the austerity package mandated by the International Monetary Fund and the European Union.
The euro rose 0.6 percent against the dollar.
The EU and IMF are currently withholding a 12 billion euro portion of their 110 billion euro loan to Greece as they wait for concrete movement on the package of cuts and privatizations that Papandreou's government have been struggling to pass.
An impasse within the ruling PASOK party, whose individual members are facing public backlash as widespread opposition to austerity within Greek society boils over into protests, saw Papandreou first offer to step down and form a unity government last week and then, on Thursday, reshuffle his cabinet.
By bringing more PASOK party insiders into his cabinet, including his former leadership rival Evangelos Venizelos—at the expense of technocrats, such as economist Giorgios Papakonstantinou, who lost his brief as finance minister—the prime minister hoped to be able to head off opposition from within his own party, analysts told CNBC.com on Tuesday. That dissent had been growing, with members of parliament defecting in protest at the austerity vote ahead of the reshuffle.
PASOK has a slim majority in parliament, with 155 members out of the 300-member house.
To pass, Papandreou needs an absolute majority in parliament, and an attendance rate of more than two-fifths, equivalent to 120 members.
Parliament is now due to vote at the end of June on the austerity package.
Eurasia Group's European director Wolfgango Piccoli wrote in a note earlier in the day that in the "low probability scenario" of a no-vote would lead to early elections, which would mean that the vote on austerity would be delayed, and so would the next tranche of the EU/IMF package. This would heighten the risk of default, unless some form of bridging financial agreement could be arranged to fill the financing gap.
Whether the "Troika"—the EU, IMF and ECB—would agree to such a measure depends on their assessment of the fallout of a default in the short term.
Analysts told CNBC.com earlier that a disorderly default, which would seem likely if the Greeks are unable to release the next portion of their loan in July, could lead to contagion into other areas of the euro zone.
However, even though markets will be encouraged that the government looks set to cross the first hurdle, they may not be reassured for long.
"I don't see this fiscal plan taking effect whether it gets passed or not. Does that push Greece inexorably towards default? I think it probably does, and even after a default, I think people who are campaigning for a default, thinking that it's going to be a massively better situation to austerity might have a nasty surprise on their hands," Lea said.
Several fund managers speaking to CNBC.com throughout the run-up to the vote reiterated their belief that this vote, and the legal passage of the austerity plan, will only be temporary measures, and that most in the market are accepting that Greece will default. What matters now is how that process is managed.
"For the past few months all of the Greek news has been leading towards this type of event," Ryan Hughes, a portfolio manager at Skandia Investment Management told CNBC.com.
Ahead of the vote, acting IMF head John Lipsky said in a speech in Berlin that the Greek program could work and prevent a default – all that mattered was political will.
"The underlying Greek fiscal system is broken, but if it's broken, that implies it can be fixed. It's not that hard to figure out how to fix it. It's a matter of political will," he said.