Will It Be Third Time Lucky for Greece?

International lenders take a third stab on Monday at reaching an agreement on lowering Greece's debt to sustainable levels. A positive outcome would pave the way for the release of key aid to Athens and should cement the risk appetite that has resurfaced in markets, well, at least for the short-term, analysts said.

Confusion Reigns Over Greece Bailout Extension
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Euro zone finance ministers, the International Monetary Fund (IMF) and European Central Bank (ECB) have failed twice to reach an agreement on Greece and hopes are rising that a deal will be made on Monday.

Analysts said Greece, together with a possible deal to avert a U.S."fiscal cliff" of looming tax hikes and spending cuts, hold the key to maintaining a resurgence in risk appetite that has boosted equity markets and help send the euro to three-week highs versus the dollar in the past week.

(Read More: Is Euro Pessimism Overdone? Pro Sees $1.50 Next Year)

"If they (the international lenders) strike a deal on Greece, that would be positive in the short-term," Marco Bardelli, CEO at UBI Capital Singapore told CNBC Asia's "Squawk Box" on Monday. "But medium-term, problems exist."

Last week European Union leaders failed to reach an agreement on setting a budget for the next seven years, while early results from Sunday's regional elections in Spain showed four separatist parties in Catalonia looked set to win a majority. These are two developments that highlight the problems that will continue to hang over the euro zone, according to Greg Gibbs, senior currency strategist at the Royal Bank of Scotland.

"Every piece of information that has come out of Europe over the past week has been disappointing. There have been delays in the Greek deal and over the weekend we've had an election result in Spain that does not appear to be too encouraging," he told CNBC.

"There is a sense of stability now and that's why money has flowed into (risk) assets," he added. ""In six months from now, where are we going to be? I still think we are going to be struggling terribly in Europe and these deals that are being done do not look credible."

All About Greece

Athens says time is running out and that it needs the next tranche of aid, of up to 44 billion euros ($57 billion), from its international lenders, to recapitalize its banks and prop up an economy mired in recession. Greece's next big repayment is due in mid-December.

But as it has teetered on the brink of bankruptcy and pushed through unpopular austerity measures, Greece's lenders have disagreed over how to lower Greece's massive debt burden.

A bailout deal between Greece and its international lenders aims to get debt down to 120 percent of gross domestic product (GDP) by 2020. Greek debt currently stands at about 170 percent of GDP.

Euro zone finance ministers favor allowing Greece two extra years to bring down its debt levels to 120 percent of GDP, but an extension to 2022 has been resisted by the IMF, which wants Greece's creditors to forgive a portion of the country's debt in what is referred to as a "haircut."

"I think they will give Greece the money it needs today (Monday), but that won't solve the Greek debt problem," Uwe Parpart, managing director at Reorient Financial Markets told CNBC Asia's "The Call."

"I agree with the IMF that there should be a 'haircut' on Greek debt, but Germany and France would not be happy with that. They (the international lenders) want to cut Greek debt to 120 percent of GDP by 2020. That's unlikely to happen and everybody knows that," he added.

Concerns about the euro zone debt crisis have eased since July when ECB President Mario Draghi promised to do whatever it takes to keep the euro zone together, while subsequent policy announcements from the central bank and regional policymakers went further to underpin sentiment in markets.

Analysts said an image of in-fighting among policymakers threatens to undo the positive work done over the summer months.

"Recent developments and continuous fractions between different countries leave us in the fog. We don't see a true leadership in Europe that is taking us forward," said Bardelli at UBI Capital Singapore.

By CNBC's Dhara Ranasinghe