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ECB, Eurogroup give Greece breathing space after Athens vote

Mario Draghi, president of the European Central Bank (ECB), speaks during a news conference to announce the bank's interest rate decision at the ECB headquarters in Frankfurt, Germany.

[FRANKFURT] Eurozone ministers approved the launch of Greece bailout talks and the ECB boosted its cash lifeline to the crisis-hit country Thursday after lawmakers in Athens grudgingly passed a tough reform package demanded by creditors.

"The Eurogroup welcomes the adoption by the Greek Parliament of all the commitments specified in the Euro Summit statement" reached in marathon talks last weekend, the eurozone's 19 finance ministers said, just hours after the Greek parliament passed sweeping changes to taxes, pensions and labour rules.

In an almost immediate reward to Athens, European Central Bank chief Mario Draghi in Frankfurt said that a vital cash lifeline to Greece's struggling banks would be boosted, while also throwing his weight behind IMF calls for debt relief to the country.

The Emergency Liquidity Assistance or ELA - which has kept Greek banks, and by extension the Greek economy, afloat - has been fixed at around 89 billion euros (S$132.2 billion) since late June, but would be topped up with an additional 900 million euros, Mr Draghi said.

In response, the Greek government announced that banks would reopen on Monday, although withdrawals would still be capped at 60 euros a day.

"From Monday, citizens can go to the bank counters and make any kind of transaction," Deputy Finance Minister Dimitris Mardas told ERT public television late Thursday.

Buoyed by the positive signals on Greece, European stock markets closed higher on Thursday.

Greek Prime Minister Alexis Tsipras on Wednesday had to face down a major mutiny in his radical left Syriza party, and violent protests in the streets of Athens, to win parliamentary approval for the draconian reforms demanded in return for a new 86-billion-euro bailout package.

But the Eurogroup, led by the no-nonsense Dutch Finance Minister Jeroen Dijsselbloem, was encouraged by the outcome.

Mr Dijsselbloem said the raft of reforms approved by the Greek parliament were a first step to "start to rebuild trust", as he called for urgent foreign investment to help boost Greece's debt-ridden economy.


The European Commission, the EU's executive and Greek creditor, also approved Greece's delivery of key reform demands.

"The Greek parliament took an important step toward rebuilding trust with Greece's international partners," said commission spokeswoman Annika Breidthardt.

The Eurogroup statement did not mention whether ministers had discussed a three-month 7.0 billion euro bridging loan for Greece through an EU-wide crisis fund to hold Athens over until its new bailout is ratified.

Non-euro Britain had resisted the use of this fund, but said late Thursday it had dropped its objection after reaching a deal that would protect it and other non-euro countries against potential losses. A compromise agreement was expected to be finalised on Friday.

"These have been tough talks, but the agreement announced this evening means an impregnable ring-fence around British taxpayers' money, which will not be at risk in any way in this emergency financing for Greece," British finance minister George Osborne said.

In Frankfurt, the ECB played its part by boosting the ELA facility which, strictly speaking, it is only available for banks that are solvent - a questionable assumption in Greece.

But Mr Draghi said, with the bailout talks now moving forward, the conditions were "in place" to raise the ELA ceiling.

Athens has failed to make a key debt repayment to the International Monetary Fund, and its next debt deadline is a 4.2-billion-euro payment to the ECB itself on July 20.

Mr Draghi was adamant that Athens would repay its debts to both the ECB and the IMF, declaring confidently that "on 20 July, we will be repaid".

Mr Draghi insisted that the capital controls introduced by Athens had protected savers, even if they may have put a temporary drag on recovery.


Mr Draghi also said that Greece - whose debts amount to 180 per cent of economic output - would need some sort of debt relief.

The key was what form such relief could take, he said.

The IMF, one of Greece's creditors alongside the EU and the ECB, caused a stir with a bombshell report criticising the deal and warning that lenders would have to go "far beyond" existing estimates for debt relief.

But for the biggest creditor, Germany - whose parliament must vote on resuming talks on the new bailout package - a pure and simple writeoff is seen as a no-go.

"A real debt haircut is irreconcilable with membership in a monetary union," hardline Finance Minister Wolfgang Schaeuble insisted on Deutschlandfunk public radio.

Several other eurozone parliaments are also voting on the bailout package.

France gave its green light on Wednesday, and Finland's parliament on Thursday gave its approval for the bridge financing plan and for talks on a third bailout deal.

On Friday, German lawmakers will interrupt their summer holiday to vote on granting the government a mandate to negotiate the modalities of the new aid package.

On the eve of the Bundestag vote, Dr Merkel and Mr Schaeuble met with conservative lawmakers to urge them to back the deal, with the chancellor saying she was "absolutely convinced" it was the way forward.


Read more on the Greek crisis here