International officials have said Greece will receive the next instalment of
its bail-out funding following a month-long inspection.
European authorities and the IMF said the next tranche of their 110bn euro
($159bn; 97bn) bail-out package would be paid, most likely in July.
There had been fears that Greece had not been progressing fast enough with cuts
and this would be delayed.
Meanwhile, reports suggested a new, extended bail-out was being finalised.
Jean-Claude Juncker, who is head of the group of eurozone finance ministers,
said he thought extra help was likely, in exchange for additional
deficit-cutting measures.
"I expect the Eurogroup to agree to additional finance being provided to Greece
under strict conditionality," he told reporters.
Speaking after a meeting with Greek Prime Minister George Papandreou, he said
that the conditionality would include assistance from private sector
bondholders.
"On that basis, it's obvious there will not be an exit of Greece from the euro
area, there will be no default and Greece will be able to fully honour its
obligations," said Mr Juncker.
Any new bail-out funding would have to be agreed by eurozone finance ministers
who are scheduled to meet on 19 and 20 June.
'Growth drivers'
After their latest inspection of Greece, officials from the IMF, European
Commission and European Central Bank said there had been encouraging signs
recently, in particular a notable pick-up in exports.
But it said going forward the government needed to stick to its
deficit-reduction strategy, in which it has committed to making job cuts in the
public sector and significantly accelerating its privatisation programme, with
the aim of raising 50bn euros by the end of 2015.
The officials did note that further progress had been made with structural
reforms, citing moves to modernise public administration, reform healthcare,
remove barriers to setting up a business, and to liberalise transportation and
energy.
It said the government should put particular emphasis in the coming months on
"growth drivers" such as reviving the tourist industry and removing
administrative barriers to exports.
More aid
Earlier media reports suggested that Greece had agreed in principle a new
bail-out which would effectively supersede its existing EU and International
Monetary Fund bail-out.
Protesters hung a banner from the Greek finance ministry calling for a general
strike Protesters hung a banner from the Greek finance ministry calling for a
general strike
The broad terms of the package were agreed at a meeting of eurozone deputy
finance ministers in Vienna that went on until after midnight on Thursday
night, Reuters reported.
Although the size of the new package was not revealed, the news agency source
said it would cover Greece's borrowing needs for this year and next.
A report in the Greek newspaper Kathimerini said it would provide 85bn euros,
of which 30-40bn would come as EU and IMF loans, with the rest coming from
privatisation proceeds and from private sector debt relief.
Fierce opposition
The additional spending cuts and tax rises would come at time when the
government already faces daily demonstrations by thousands of protesters
against its existing plans.
Start Quote
Although he argued the precise opposite, the speech [by ECB head Jean-Claude
Trichet] was a tacit admission that neither monetary union as it currently
functions, nor the bail-outs that have followed, are working satisfactorily
End Quote
image of Gavin Hewitt Gavin Hewitt BBC Europe editor
On Friday, protesters from the pro-Communist PAME union blocked access to the
finance ministry in Athens, and hung a banner from it calling for a general
strike.
The previous night, about 20 protesters hurled stones and yoghurt at government
spokesman George Petalotis as he was stepping up to the podium at an event for
the ruling PASOK party.
Meanwhile, Mr Papandreou also faces the risk of a backbench revolt over his
austerity plans.
A group of 16 PASOK MPs wrote to him calling for a full party debate on the new
measures.
The government has a majority of 12 in the Greek parliament.
IMF threat
The original bail-out plan has been overtaken by events, leaving the Greeks
desperately short of money again.
The plan had envisaged Greece returning to the financial markets to help fund
its deficit from next year.
But with its two-year borrowing cost currently at about 25%-per-year, the
market is effectively closed to Athens.
Earlier this week, ratings agency Moody's cut its rating of Greece to one of
the worst levels available, on a par with Cuba, and only slightly above
recently-defaulted Ecuador.
Moreover, Greece has failed to bring down its deficit as quickly as planned,
largely because its economy has remained mired in recession.
'Credit event'
The new bail-out agreement is likely to include a "soft restructuring" or
"reprofiling" of Athens' private sector debts, advocated by Mr Juncker as a way
of making the nation's debt burden more manageable.
Start Quote
Greece [faces]... restructuring with a haircut, and maybe abandoning the euro
End Quote Claudio Loser Former IMF director for the western hemisphere
Until now the idea has been fiercely resisted by the European Central Bank,
which fears that by imposing losses on Greece's lenders - including
overstretched European banks - the move could spark a broader eurozone
financial crisis.
But it appears that an agreement has now been reached to grant Greece debt
relief, so long as it is done in a way that does not trigger a "credit event",
according to the Greek government source quoted by Reuters.
This "credit event" could refer to the risk of triggering payments under
derivative contracts used by financial markets to hedge or speculate on the
risk of a Greek default.
It could also refer to methodologies used by the credit rating agencies and by
the banks to determine whether loans are in default.
Many European banks have not yet recorded any losses on most of their lending
to Greece, and could find their own solvency is put at risk if they are forced
to do so.
It is likely that the restructuring would involve the postponement of debt
repayments due in the next two years.
It would also have to be done with the agreement of Greece's private sector
creditors.
But according to a former director of the IMF, Greece will eventually have to
impose losses, or "haircuts", on its lenders - something that would definitely
constitute a default.
Claudio Loser, who negotiated past IMF rescue loans for Argentina and Uruguay,
said Greece's only other option was to abandon the euro, although he conceded
this would be "more complicated".