Brussels backs using EU rescue fund for Greece

(BRUSSELS) - The European Commission on Wednesday proposed giving Greece a three-month 7.0 billion euro bridging loan through an EU-wide crisis fund until its new bailout is ratified, despite resistance from Britain and Germany.

While it waits for a bailout deal sealed on Monday to kick in, Athens desperately needs money for several imminent payments including 4.2 billion euros ($4.6 billion) owed to the European Central Bank (ECB) on Monday.

Announcing the plan, Valdis Dombrovskis, the commission's vice president for the euro, said Brussels was trying to address the concerns of member states like Britain that are not part of the single currency.

"In absence of a better solution, the European Commission has proposed to the Council (of member states) to grant short-term emergency assistance to Greece from the EFSM" (European Financial Stabilisation Mechanism), said Dombrovskis.

The EFSM is a rescue fund set up at the time of Greece's first bailout in 2010 but it involves the whole of the 28-nation EU, not just the 19 eurozone members, meaning that its use is controversial.

Dombrovskis, the former Latvian prime minister, added that it was "not an easy solution. We are working to address concerns of non-euro member states have enough guarantees against any negative financial consequence."

The loan will officially be for three months, but EU officials say they hope it will only be needed until August 17 when they expect Greece's new bailout to be ratified, provided that Athens passes tough new austerity measures first on Wednesday.

- Britain 'won't bail out eurozone' -

British Prime Minister David Cameron insisted that his country would not be responsible for bailing out Greece, echoing comments by finance minister George Osborne who said the plan was a "complete non-starter".

"It's not for Britain to bail out eurozone countries and we wouldn't do that," Cameron told parliament.

But there were signs of compromise, with a British official saying London was ready to be "constructive" as long as worried non-euro nations that also include Denmark, Sweden and the Czech republic were spared all financial risk.

"As long as British taxpayers are protected, we are willing to look at what the options are, given that there is an issue with short term financing for Greece," the official said on condition of anonymity.

Another EU diplomat however warned that the measure should be passed quietly at the ambassador level to avoid a full meeting of EU ministers, where angry officials "could make noise".

Even if Britain voted against, the EU's complex voting rules mean that any decision on whether to use the fund would be by a weighted majority, meaning that London would have to rally other states if it wanted to block the move.

Germany's hawkish Finance Minister Wolfgang Schaeuble expressed doubts about the "not very constructive" Commission plan, but it is not clear which way Berlin would vote on the matter.

EU diplomats said that the commission was now in discussions to find ways to "reassure" non-euro states, including options for collateral, to ensure that any money from the EU budget is recouped, EU diplomats said.

The short-term funding is crucial because if Greece misses the ECB payment on Monday the Frankfurt-based lender will cut off emergency liquidity aid to Athens, effectively collapsing its banking system.

Greece also has to settle around 2.0 billion euros in missed payments to the International Monetary Fund since June 30.

This is an essential step since Monday's bailout deal specifies IMF involvement in any future aid programme, but the IMF's rules mean it cannot help Greece while it is in arrears.