EUROPEAN Union officials are in a race to get agreement on a second bailout package for Greece within a month, but face resistance from the borrower and lender countries.
he race to secure a deal has raised the possibility of a further erosion of Greek sovereignty and of private sector lenders being asked for a degree of help in the process, if only to make new loans more palatable to taxpayers in Germany and Finland.
EU officials are reported to be looking at a new €65bn package for Greece. It could involve a mixture of collateralised loans from the EU and IMF and extra revenue measures.
Most controversially, the talks are understood to include an unprecedented level of external supervision of Greece's privatisation programme.
"It would require collateral for new loans and EU technical assistance -- EU involvement in the privatisation process," one EU official told Reuters.
Senior EU officials are understood to have held emergency talks with the Greek government over the weekend.
Yesterday, ECB executive board member Lorenzo Bini Smaghi warned that Greek debt restructuring or an exit from the euro would be a "death sentence" and would have a dramatic destabilising impact on the euro region.
Extra funding for Greece already faces fierce political resistance from fiscal conservatives and nationalists in key north European creditor countries -- Germany, the Netherlands and Finland -- complicating the task facing EU governments.
About €45bn in Greek government bonds acquired by the EU's central bank as part of an emergency bailout would be affected by a default, and the burden of any restructuring ultimately would fall on taxpayers, Mr Smaghi said.
Greece's conservative opposition yesterday demanded lower taxes as a condition for reaching a political consensus with the socialist government on further austerity measures. Brussels says austerity is needed to secure any further assistance.
With so much focus on the politics of a new bailout, bond markets were relatively unchanged.
The yield on Ireland's 10-year government bonds fell after Central Bank boss Patrick Honohan said the bank had contingency plans "for everything" and Finance Minister Michael Noonan said Ireland remained on course with the bailout conditions. Yields on the 10-year security fell one basis point to 11.07pc, but the yield on two-year bonds hit their highest level since May 16.
In a day of mixed but light trading, Greek 10-year bond yields were up, but Italy's fell as it sold €3.5bn of debt.
Markets are likely to remain in limbo until a meeting of eurozone finance ministers on June 20. That meeting has been pushed back a week from its original date. It will be followed three days later by a summit of EU leaders to assess the 18-month-long debt crisis.