By Kerin Hope in Athens

Costas Karamanlis, the Greek prime minister, is this week set to approve the €2.5bn ($3.9bn, £2bn) sale of a strategic stake in OTE, the public telecoms operator, to Deutsche Telekom, which would also take over management.

The deal, which comes as the Greek economy shows signs of slowing after a decade of strong growth, would be the country’s most important privatisation to date.

It is seen as a test of the right-of-centre government’s commitment to attracting foreign direct investment and to modernising a corrupt and inefficient public sector.

Former senior OTE executives are due to appear before an Athens prosecutor this week in a probe linked to the billion-euro bribery scandal at Siemens, the German engineering group, one of the Greek operator’s leading equipment suppliers.

The prosecutor is investigating allegations that OTE managers took bribes from Siemens’ Greek subsidiary, based on documents provided by German prosecutors and details of foreign bank accounts, court officials said.

Mr Karamanlis has still to win over OTE’s militant unions – they have denounced the deal as “a sell-out by national traitors” – as well as several backbenchers in his New Democracy party.

A deal would have to be ratified by parliament. With a majority of just two seats, ND is vulnerable to defections by dissident deputies.

OTE shares, listed on the Athens stock exchange, have made gains during a four-year restructuring effort.

Although domestic fixed-line operations have lost ground to private competitors, the group is considered a flag-bearer for Greece in the Balkans.

It has invested more than €3bn in fixed-line and mobile operations in the fast-growing markets of Albania, Bulgaria, Macedonia, Serbia and Romania – which fit neatly with the German group’s investments in Croatia, Macedonia and Montenegro.

DT would acquire a 19.9 per cent stake in OTE held by Marfin Investment Group, a Greek private equity company, and 3 per cent from the Greek state.

It aims to increase its stake to 30 per cent to become the biggest shareholder and control management. The state would retain a 25 per cent share and have a presence on the board.

Discussions last week focused on the size of the premium the German group would pay for the additional 3 per cent stake and the extent of its control over management, people close to the negotiations said.

“We’re optimistic the deal will get done, but the devil is in the details,” said one person close to the talks.

Panagis Vourloumis, OTE chairman, who has led the restructuring effort, would stay on to oversee a management transfer. DT would appoint a chief executive.

“Given the volatile political climate, the chairman’s continued presence provides comfort for the new investor,” said an Athens-based analyst.

Institutional shareholders would welcome the entry of “a strong European investor” able to accelerate the roll-out of new technologies and raise corporate governance to international standards, the analyst said.

The bribery probe has also highlighted longstanding weaknesses in OTE’s management. The group is deeply politicised, with senior appointments made by the governing party.

OTE’s Balkan acquisitions, made in the 1990s, were criticised for a lack of transparency, while subsidiaries’ procurement contracts were awarded without close scrutiny by Athens.

For Mr Karamanlis, pulling off a deal with DT would also mark a symbolic break with the past. As a young backbencher in 1993, he watched the previous ND government collapse over the proposed sale to France Telecom of a strategic stake in OTE, following the defections of a group of nationalist backbenchers.