Markets fear a Greek default could spark heavy losses among European banks holding Greek government bonds

Markets fear a Greek default could spark heavy losses among European banks holding Greek government bonds, which may lead to a possible contagion through the global banking system and financial markets.

A year after European officials authorised a bailout package for Greece, European finance ministers, meeting in Luxembourg on Monday, decided to make the next 12 billion euro- ($A16.25 billion) tranche of Greece's 110 billion euro ($A148.99 billion) loan, in early July.

But the funds will flow only if Greece's parliament passes new spending cuts and reforms by the end of June.

"They're still a long way from a permanent solution," CMC Markets chief market strategist Michael McCarthy said.

"Ultimately they have to go towards fiscal union or they have to break up the EU - that's the only choices they have."

"They will live from temporary fix to temporary fix until they can gather the political will to make the structural changes in Greece that are required."