Euro zone finance ministers have approved a 12 billion euro ($17.4 billion) installment of Greece's bailout, but signaled that the nation must expect significant losses of sovereignty and jobs.

Ministers in the Eurogroup gave the go-ahead for the fifth tranche of Greece's 110-billion-euro financial rescue agreed last year, and said details of a second aid package for Athens would be finalized by mid-September.

But within hours of Saturday's decision, Eurogroup chairman Jean-Claude Juncker warned Greeks that help from the EU and International Monetary Fund would have unpleasant consequences.

The sovereignty of Greece will be massively limited, he told Germany's Focus magazine in the interview released on Sunday, adding that teams of experts from around the euro zone would be heading to Athens.

One cannot be allowed to insult the Greeks. But one has to help them. They have said they are ready to accept expertise from the euro zone, Juncker said.

Greeks are acutely sensitive to any infringement of their sovereignty and any suggestion that foreign commissars might become involved in running the country is an incendiary political issue and could trigger more street protests.

After Saturday's conference call on Saturday, the 17 euro zone ministers agreed the fifth tranche would be paid by July 15, as long as the IMF's board signed off on the disbursement. The IMF is expected to meet on July 8 to approve it.

The payment will allow Greece to avoid the immediate threat of debt default, but the country still needs the second rescue package, which is also expected to total around 110 billion.

Between now and then, finance ministers will work on the precise modalities and scale of private creditors' involvement.

Germany hopes this will eventually total around 30 billion euros, with banks voluntarily buying new Greek bonds when old ones they hold mature, meaning Athens would not have to produce cash to repay its creditors immediately.

Juncker also said Greece must privatize on a scale similar to the sell off of East German firms in the 1990s.

For the forthcoming wave of privatizations they will need, for example, a solution based on a model of Germany's 'Treuhand agency', Juncker said, referring to the privatization agency that sold off 14,000 East German firms between 1990 and 1994.

BITTER EXPERIENCE

Greece's problems with a lack of economic competitiveness are modest compared with those of eastern Germany, which more than 20 years after communism still has high unemployment.

Juncker made no explicit reference to job losses. But any repeat of Germany's Treuhand experience may prove bitter for Greeks, who are already suffering soaring unemployment as a recession drags into its third year.

Treuhand was supposed to sell state property at a profit but closed with a huge deficit and a legacy of bitterness among the legions of workers whose jobs it destroyed. Four million Germans were employed by Treuhand-owned companies in 1990 but only about 1.5 million jobs were left by 1994.

The Greek parliament voted on Thursday to set up a privatization agency under austerity plans agreed with the European Union and IMF which have provoked violent protests on the streets of Athens.

Athens must sell off 5 billion euros in state assets this year alone or risk missing targets set under its EU/IMF program, which could cut off its funding needed to keep the government running and avoid a debt default.

The current package of measures, which Athens has agreed to, will bring a solution to the Greek question, said Juncker. However, he added that the Greek tax collection system was not fully functional.

Athens has repeatedly failed to meet budget targets laid down in the first bailout program, raising the risk that the crisis will spread across the euro zone if unresolved.

What is crucial now is to implement parliament's decisions, Greek Finance Minister Evangelos Venizelos said shortly after the Eurogroup decision.

The decision gives Athens breathing but concern is growing among EU officials that the strictures being imposed on Greece, including 28 billion euros of austerity measures between now and 2015, are too harsh and could cause longer-term damage.

Financial markets still see an 81 percent chance that Greece will eventually default, and German Finance Minister Wolfgang Schaeuble told Der Spiegel in an interview that Berlin was making preparations for such an event -- even though it does not expect it to happen.

Private financial institutions have held talks with finance ministry and central bank officials in euro zone countries to discuss under what conditions the private sector would be willing to help finance Greece and by how much.

Those discussions continue, with the involvement of the private sector in the next package a must for several euro zone countries as voters grow increasingly opposed to shouldering the burden of bailing out Greece on their own.

But private sector involvement must be voluntary to avoid triggering another downgrade of Greek debt to default status by ratings agencies, a development which could put the whole Greek banking sector at risk. (Additional writing by David Stamp; reporting by Angeliki Koutantou and James Mackenzie in Athens; Editing by Alison Williams)

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