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EU approves emergency loan for Greece

Eu head quarterThe EU approved a short-term loan for Greece Friday, allowing it to make huge payments as early as next week to its international creditors while a new eurozone debt bailout is being hammered out.

The European Union’s 28 member states unanimously agreed to give Greece 7.16 billion euros ($7.8 billion) using a bloc-wide crisis fund, overcoming strong objections by Britain and other nations outside the eurozone with assurances they would not be put at risk.

“We have an agreement on bridge financing … This agreement backed by the 28 member states prevents Greece from an immediate default,” EU Commissioner for the euro Valdis Dombrovskis told reporters in Brussels.

The loan allows crisis-hit Greece to pay the European Central Bank 4.2 billion euros due Monday, and cover arrears to the International Monetary Fund of 2.0 billion euros.

But crucially, the loan will not cover the next payment to the ECB, due on the August 20, effectively giving Greece and its creditors only a month to negotiate the terms of a new three-year bailout of 86 billion euros, agreed in principle at a crunch eurozone summit on Monday.

“It will allow Greece to clear its arrears with the IMF and the Bank of Greece and to repay the ECB, until Greece would start receiving financing under a new programme from the European Stability Mechanism (ESM),” the European Council, which represents the bloc’s 28 member states, said in a statement, referring to the eurozone’s bailout fund.

The ESM meanwhile, which is governed by the eurozone’s 19 finance ministers, said that it had officially approved beginning negotiations for what will be Greece’s third bailout since 2010.

– ‘Not going to be easy’ –

“This agreement offers a chance to put the Greek economy back on track,” said Dutch Finance Minister Jeroen Dijsselbloem, who heads the Eurogroup of his eurozone counterparts.

“It’s not going to be easy. We are certain to encounter problems in the years to come. But I believe we will be able to resolve them,” he added.

Officials hope the bailout talks between Greece and its creditors — the European Commission, the ECB and the IMF — will take no more than three weeks at which point Athens could begin receiving cash in exchange for further very tough economic reforms.

The ESM approved the talks after the Greek parliament passed a first set of draconian reforms in a dramatic vote on Wednesday.

“We welcome that the Greek government and parliament voted in favour of the reforms with a very broad majority,” ESM chief Klaus Regling said in a statement.

The bridge loan to tide Athens over will be given through the European Financial Stability Mechanism, a rescue fund set up at the time of Greece’s first bailout in 2010 but that involves the whole of the 28-nation EU, not just the 19 eurozone members.

Britain on Thursday dropped its opposition to the emergency EU loan to Greece after reaching a deal that would, it said, protect it and other non-euro countries against potential losses.

Prime Minister David Cameron of non-euro Britain had insisted that his country would not be responsible for bailing out Greece, while his finance minister George Osborne said the plan was a “complete non-starter”.

The use of the EFSM risked causing a headache for Cameron as he seeks to renegotiate Britain’s own membership of the EU ahead of an in-out referendum by 2017.

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