Greece's public sector creditors may need to participate in a restructuring of its debt if a haircut negotiated with private sector bondholders is not enough to make Athens's debt sustainable, IMF Managing Director Christine Lagarde said.
"The balance between the participation of the private and the public sector is a concerning question,» Lagarde told journalists in Paris on Wednesday.
"If the level of Greek debt held by the private sector is not sufficiently renegotiated, then public sector holders of Greek debt should also participate in the efforts,» she said.
Lagarde said that reform efforts by European countries such as boosting a firewall to stem contagion from its debt crisis were crucial for the health of the world economy, but other countries also needed to make efforts.
Also on Wednesday, speaking on Europe 1 radio, Lagarde said that combining the European Union's temporary EFSF rescue fund with its permanent ESM mechanism would help restore confidence in the flagging region and provide a solid firewall to the Greek crisis.
"If the two of them could make a common European pot, that would send a very strong sign of confidence in Europe,» Lagarde told Europe 1 radio.
German Chancellor Angela Merkel has resisted calls to let the two funds to operate simultaneously, rather than allowing the ESM to replace the EFSF as originally planned. France is in favor of the measure.
The former French finance minister said Europe needed a strong firewall to prevent the crisis in debt-ridden Greece, where she said the situation was extremely difficult, spreading to the larger economies of Italy and Spain.
She said the next few weeks would be crucial to the world economy this year, after the IMF on Tuesday cut its world economic growth forecast to 3.3 percent in 2012. [Reuters]