ECB, Eurogroup give Greece breathing space

GREECE’S banks have been saved from collapse after MPs grudgingly passed a tough reform package demanded by creditors.

European Parliament President Martin Schulz drinks from a cup prior to a parliamentary group meeting of the SPD in Berlin on July 16, 2015 the day before German lawmakers vote in the Bundestag on entering into negotiations on the new aid package for Greece. AFP PHOTO / TOBIAS SCHWARZ

EUROZONE ministers have approved the launch of Greece bailout talks and the ECB boosted its cash lifeline to the crisis-hit country after MPs 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 ($A132bn) since late June, but would be topped up with an additional €900 million, Mr Draghi said.

The news propelled European stock markets which 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 the bailout package.

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

The Greek authorities "have implemented the first set of four measures in a timely and overall satisfactory manner", it said in a statement.

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," according to commission spokeswoman Annika Breidthardt.

The Eurogroup statement did not mention whether ministers had discussed a three-month €7bn bridging loan for Greece through an EU-wide crisis fund to hold Athens over until its new bailout is ratified.

Non-euro Britain and the Czech Republic have resisted the use of this fund, but European officials told AFP that a compromise was in the works and could be finalised on Friday.

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 €4.2bn payment to the ECB itself on July 20.

But 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.

The ECB chief conceded that doubts remain about the "willingness and capacity" of the Greek government to push through the economic reforms demanded by its creditors.

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.