Britain secures compromise on EU rescue fund for Greece

(LONDON) - Britain on Thursday dropped its opposition to an emergency EU loan to Greece after reaching a deal that would protect it and other non-euro countries against potential losses, the government said.

The European Commission proposed giving Greece a three-month 7.0-billion-euro ($7.6 billion) bridging loan through an EU-wide crisis fund until its new bailout is ratified.

Britain had vowed to resist any bid to use the European Financial Stabilisation Mechanism (EFSM), saying aid should come from the 19-country eurozone and not the full 28-nation European Union.

But finance minister George Osborne said he had struck a legally binding deal with the European Commission to address these concerns, and European officials said an agreement could be finalised on Friday.

A British Treasury source said that before Greece receives a loan, the eurozone will create a ring-fenced cash fund to cover any potential losses by non-eurozone members.

"These have been tough talks, but the agreement announced this evening means an impregnable ring-fence around British taxpayers' money, which will not be at risk in any way in this emergency financing for Greece," Osborne said.

"Importantly, we have also managed to secure the same protections for all other member states who are not members of the single currency. The European Commission has agreed these changes will be legally binding."

The use of the EFSM risked causing a headache for Prime Minister David Cameron as he seeks to renegotiate Britain's membership of the EU ahead of an in-out referendum by 2017.

After the fund was used to assist Ireland and Portugal, Cameron announced in 2010 that he had secured agreement that it would no longer be used to underwrite bailouts of eurozone countries.

Critics of his current EU negotiations noted that if the EFSM agreement could be ripped up to help Greece, any reforms Cameron secured regarding Britain's membership would have to be enshrined in law before the referendum.

"I said British taxpayers' money would not be on the line in any agreement and that's precisely what we have achieved," Osborne said, calling it a "significant victory".