Europe struggles towards new Greek bailout deal

The stakes keep rising in a multi-dimensional poker game over Greece's debt crisis, but none of the key stakeholders appears to have any interest in pushing Athens into default.

Barring a political accident, a new EU/IMF bailout package for Athens – barely a year after an initial 110 billion euro ($158 billion) rescue – is likely to be agreed by the end of June, several officials involved in the negotiations say.

Financial markets seem to believe that and have begun to lower Greek bond yields slightly from stratospheric levels.

In some ways, the deal will be tougher on Greece than the last one; it will give creditors a supervisory role over the privatization of Greek state assets that will intrude on national sovereignty, officials say.

It will probably also involve "voluntary" commitments by private investors to maintain their exposure to Greece, the officials say, although this remains highly sensitive.

The European Central Bank and credit rating agencies have warned that the European Union would be playing with fire if it tinkered, even on a voluntary basis, with the terms of existing bonds. That could trigger a chain of downgrades and defaults.

Privately, one ECB source predicted the central bank would ultimately acquiesce if banks volunteered to roll over credit to Greece. But before the new deal for Greece is reached, officials may continue to clash publicly over this and other issues.

"Expect an aggravation of the stress relationships between all partners -- international institutions, national governments and domestic players in Greece – between now and the (June 24) European summit," a senior EU source involved in the talks said.

"There will be public statements that will raise tensions. The communication will get much worse before it gets better."

Like other European, International Monetary Fund and national officials and central bankers interviewed for this article, the source spoke on condition of anonymity because of the acute sensitivity of the negotiations.

All said they expect a three-year program worth some 65 billion euros to be agreed, after much kicking and screaming, to keep Greece on an international lifeline and avoid a first default in the 17-nation European single currency area, which could trigger a domino effect among other weak euro zone states.

A portion of the program would be provided by the euro zone's bailout fund, the European Financial Stability Facility, and a smaller portion – half the EU's share, if the model of past bailouts is followed – by the IMF. The rest of the money would be raised through asset sales by the Greek government.