Euro ministers set to launch Greek bailout, wooing IMF on debt

BRUSSELS (Reuters) - Finance ministers from the euro zone were meeting in Brussels on Friday expecting to give their final blessing to lending Greece up to 85.5 billion euros after parliament in Athens agreed to stiff conditions overnight.

German Finance Minister Wolfgang Schaeuble, long the most powerful sceptic on the merits of giving Greece a third bailout to keep it in the EU's common currency area, voiced optimism as the meeting began that it would end with an accord that will give Athens the funds needed to meet a loan repayment next week.

However, some issues still need to be ironed out following a deal struck on Tuesday by negotiators from the European Commission, European Central Bank and International Monetary Fund. Among these are how to ensure the IMF remains involved in overseeing the new euro zone programme while delaying satisfying IMF calls for debt relief for Greece until a review in October.

"I'm actually quite confident that we can reach an agreement today," Schaeuble told reporters in Brussels.

"We have to see that we can get a clear, possibly binding, commitment from the IMF. That's a prerequisite for us but we've always said that has to be feasible. The IMF has its own rules but we will have to find a way."

After arguing all night, the Greek parliament gave its backing to leftist Prime Minister Alexis Tsipras, though he had to rely on opposition votes after nearly a third of his own supporters rebelled, forcing him to consider a confidence vote that could pave the way for early elections.

After defeating conservatives in January, Tsipras remains hugely popular in Greece for standing up to Germany's insistence on austerity before capitulating to new bailout terms under the threat of a euro zone exit. He would be expected to win again if snap polls were held now, given an opposition in disarray.

The Washington-based IMF, which has its own loan programme for Greece outstanding and has played a role in supervising the implementation by Greece of conditions for two previous bailouts, has urged the other 19 states of the euro zone to give Athens debt relief in order to help revive its crippled economy.

IMF Managing Director Christine Lagarde was due to call in by telephone to the Eurogroup for part of the meeting, euro zone officials said. Many euro zone governments have ruled out any "haircut" on the nominal amount of debt - something against current euro zone rules - and have questioned the IMF assessment of how much relief Greece needs, saying it is too pessimistic.

However, the bloc is keen to have the IMF, whose imprimatur is prized in financial markets, closely involved in managing the Greek programme and has agreed to look at easing terms, such as by lengthening repayment deadlines, once a first review of Greek compliance with conditions is completed in October. The IMF, though, has made clear it sees debt relief as essential for giving the Greek economy the means to service the new loans.

CATCH 22

"There's a bit of a Catch 22 that we need to solve," said Finnish Finance Minister Alexander Stubb, whose government was among those most ready to favour a Greek exit from the euro before a last-minute deal struck by EU leaders a month ago.

"The IMF wants to be involved only if there is debt relief; we want the IMF to be involved but we don't want debt relief. Some kind of solution will have to be found."

He forecast a three-part solution, starting with agreement on Friday to release funds before Thursday, when Greece must repay 3.4 billion euros to the ECB. Then the creditors' institutional representatives would review Greek compliance with their terms - including passing new laws and privatising firms.

Once that was done in October, Stubb said, "step number three" would be "to see how to get the IMF involved".

"The IMF is on board as concerns programme conditionality," said Valdis Dombrovskis, the European Commission's vice president for the euro. "We know that IMF has its own programme, but we do not expect a formal decision on this today."

On Thursday, Delia Velculescu said after leading the IMF team at negotiations in Athens: "We look forward to working with the (Greek) authorities to develop their programme in more detail and for Greece's European partners to make decisions on debt relief that will allow Greece?s debt to become sustainable.

"The IMF will remain closely engaged with the Greek government and the European partners to assist in this process, and will make an assessment of its participation in providing any additional financing to Greece once the on the authorities' programme and debt relief have been taken."

EU officials estimate Greece needs 23 billion euros this month alone to service debts as well as to provide about 10 billion euros to recapitalise Greek banks ravaged by economic turmoil and the imposition of capital controls in June.

How to deal with the banks is another key issue facing the finance ministers, as is the handling of revenues from the privatisation of Greek state assets.

"There are some worries about recapitalising banks which could be very expensive, the privatisation fund and a third issue is the involvement of the IMF which is important for many countries," meeting chairman Jeroen Dijsselbloem said.

"We're going to talk about political trust," he said earlier in Amsterdam. "That's still a factor of course with Greece: can we trust that it's actually going to happen?

"If it appears that in reality nothing is happening then the programme will be halted again very quickly."

(Additional reporting by Alastair Macdonald, Barbara Lewis, Alexander Saeedy, Julia Fioretti and Foo Yun Chee in Brussels, Toby Sterling in Amsterdam and Athens bureau; Writing by Alastair Macdonald; Editing by Giles Elgood)