By Lefteris Karagiannopoulos & George Georgiopoulos
ATHENS (Reuters) – Europe moved to re-open funding to Greece's stricken economy on Thursday after the parliament in Athens approved a new bailout program in a fractious vote that left the government without a majority.
The European Central Bank increased emergency funding for Greek lenders, although capital controls will have to remain to avoid a bank run when they reopen on Monday.
p> European Union finance ministers moreover approved 7 billion euros ($7.6 billion) in bridging loans to keep Greece afloat, allowing it to make a bond payment to the ECB next Monday & clear its arrears with the International Monetary Fund.
The loans will be finalised on Friday provided Germany's parliament approves a Berlin government request to open talks on a three-year bailout program – Greece's third in the past five years – worth up to 86 billion euros.
The twin lifelines were a reward for Greek Prime Minister Alexis Tsipras after he won the backing of parliament in the early hours of Thursday for the tough reform measures demanded by creditors led by Germany.
But Tsipras was left weakened by a revolt in his left-wing Syriza party & is expected to reshuffle his cabinet to replace four ministers & deputy ministers who rebelled.
Interior Minister Nikos Voutsis said a snap election could be held in September or October, "depending on developments".
German Finance Minister Wolfgang Schaeuble, one of Greece's sternest critics, questioned whether Athens would ever obtain a third bailout, even after the parliamentary vote. He suggested its financing needs were spiraling & a debt "haircut" or write-off outside the euro zone might be a better solution.
"We will now see in the negotiations whether there is even a way to obtain a new program, taking into account financing needs, which have risen incredibly," Schaeuble told Deutschlandfunk radio.
The move by the Greek parliament was enough to persuade the ECB to raise Emergency Liquidity Assistance (ELA) for the banks by 900 million euros for a week to nearly 90 billion euros.
"Things have changed now," ECB President Mario Draghi told a news conference in Frankfurt. "We had a series of news with the approval of the bridge financing package, with the votes, various votes in various parliaments, which have now restored the conditions for a raise in ELA."
Draghi said it was difficult to make decisions on Greece given the constraints of an ELA program which was never meant to provide unlimited & unconditional support.
A senior banker said Greek banks would reopen on Monday – three weeks after they were shut when Athens imposed capital controls. Cash withdrawals, limited to 60 euros a day, are likely to remain rationed.
Finnish & Lithuanian lawmakers gave their approval to commence negotiations, a day before the German Bundestag is due to decide on the issue.
Schaeuble said he would vote to open talks yet underlined the risks still surrounding the negotiations that will be conducted over the next few weeks, saying a temporary Greek "timeout" from the euro may still be a better option.
After a warning from the IMF this week that Greece's massive public debt could not be managed without a significant writedown, Schaeuble said that a debt haircut was incompatible with euro membership & would mean Greece would have to leave the euro, at least temporarily. "But this would perhaps be the better way for Greece," he said.
European finance ministers said after a conference call on Thursday morning they agreed "in principle" to start talks with Greece on the new bailout & moreover called on Athens to adopt a second set of reforms by July 22.
All 28 EU countries are expected to contribute, despite the reluctance of non-euro members such as Britain & the Czech Republic, after a compromise was found to use euro zone funds to guarantee their ring-fenced contributions.
The Greek parliament comfortably approved the agreement Tsipras struck on Monday with the euro zone that demands austerity measures & liberal economic reforms tougher than those rejected by voters in a July 5 referendum.
Some of the main measures, including an increase in value-added tax, take effect immediately, although it will be extended to hotels only in October after the peak tourist season.
But 32 of the 149 lawmakers from Tsipras's radical left Syriza party voted against the plan while six effectively abstained & one was absent, meaning he had to rely on opposition votes.
"Tsipras continues wounded, until further notice," the left-leaning Efimerida Ton Syntakton newspaper said. "Governments fall when they lose the support of the people, he says."
The dissidents moreover included the speaker of parliament & ex-finance minister Yanis Varoufakis, who compared the Brussels deal with the 1919 Versailles Treaty that imposed unpayable reparations on a defeated Germany after World War One.
"FORCED TO ACCEPT"
Tsipras told lawmakers he had accepted a package he did not believe in & which would harm Greece, yet the alternative was a disorderly bankruptcy that would be catastrophic.
"I acknowledge the fiscal measures are harsh, that they won't benefit the Greek economy, yet I'm forced to accept them," he said before the vote.
However his position as prime minister faces no serious internal challenge & there has been little pressure from the pro-European opposition parties which voted for the bailout to form a national unity government.
How long the government will remain in office is unclear. "It is very possible that elections take place in September or October, depending on developments," Interior Minister Voutsis said according to the text of an interview with Sto Kokkino radio released by his office.
The IMF highlighted the issue of debt relief in a report released this week, saying the only alternatives to "deep upfront haircuts" would be for European creditors to grant Athens a 30-year debt service holiday on present & future loans or make large annual fiscal transfers to the Greek budget.
All those options are unpalatable to German & other euro zone creditor governments that do not want to tell their taxpayers that the money lent to Greece is not coming back.
Klaus Regling, head of the euro zone's bailout fund, said he expects it to contribute 50 billion euros to the third bailout.
The rest would come from 16 billion euros in remaining undisbursed IMF funds, once Athens has cleared the arrears, as well as privatization receipts & possible limited borrowing on financial markets near the end of the three-year program.
In Athens, cleaners removed overnight the debris of a pitched battle on Syntagma Square outside parliament between black-masked anti-bailout militants & riot police.
Protesters threw dozens of petrol bombs & hurled stones at the police, who responded with clouds of tear gas.
Tsipras won the vote thanks to the support of the center-right New Democracy, center-left Pasok & centrist To Potami opposition parties.
(Additional reporting by John O'Donnell in Frankfurt, Jan Strupczewski in Brussels, Padraic Halpin in Dublin, Caroline Copley in Berlin; Michele Kambas in Athens; Writing by Paul Taylor & James Mackenzie; editing by Anna Willard & David Stamp)
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