Image caption Mr Papandreou discussed a new bail-out deal at a meeting in Luxembourg

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.

Image caption 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.

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 Read Gavin's blog in full

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.

Greece [faces]... restructuring with a haircut, and maybe abandoning the euro 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".