Euro zone bailout fund opens third bailout talks with Greece

BRUSSELS (Reuters) - The European Stability Mechanism, the euro zone's bailout fund, decided on Friday formally to open negotiations with Greece on a third bailout programme that could total 86 billion euros ($93.3 billion) over three years, the fund said in a statement. The decision ends a stormy week of negotiations, organising bridge financing by the euro zone and rushing through of reforms by the Greek parliament to avoid a Greek default on the European Central Bank on Monday, July 20. "This... decision paves the way for the institutions to negotiate a Memorandum of Understanding (MoU) detailing the agreed macroeconomic reforms, or policy conditionality, linked to the ESM financial assistance facility," the ESM said. The chairman of euro zone finance ministers Jeroen Dijsselbloem expects negotiations on the third bailout for Greece to take four weeks. EU officials hope the bailout deal will be in place by mid-August when Greece needs to make further payments to the ECB to redeem its maturing debt, because the bridge financing organised so far is only 7.16 billion euros -- enough to see Athens through July, but not through August. The bride loan will come from the European Financial Stability Mechanism -- a bailout fund operated by all 28 EU governments, not just euro zone members like the ESM. To make sure that money guaranteed by non-euro zone countries is not lost in a programme to help a euro zone government like Greece, euro zone finance ministers decided to cover the non-euro zone risks with collateral in the form of profits made by the European Central Bank on buying Greek bonds -- the so-called SMP profits. "In this context, the Eurogroup agrees in principle to transfer the 2014 SMP equivalent profits to be held at an ECB account to ensure legally enforceable rights to protect non euro area Member States from a risk of loss resulting from an EFSM programme to Greece," the Eurogroup of finance ministers said. "The SMP profits will be exclusively used either as compensation to non-euro area Member States in case of losses or will be returned to the euro area Member States, if not needed," the said in a statement. "Should Greece fail to repay the EFSM loan, the available instruments to recover the debt and protect the Union budget will be used, confirming that the risks of not concluding swiftly the negotiations on the ESM programme remain fully with Greece," the statement said. (Reporting By Philip Blenkinsop and Jan Strupczewski)