"Governments are falling, bond yields are zig-zagging by whole percentage points and markets around the world are locking up: the euro zone turmoil risks turning into a global crisis," BlackRock said in a research note on Monday.
The institute, part of BlackRock Inc, one of the world's largest asset managers, said the European summit on October 26 was short on details, with more clarity and bolder steps needed.
Along with the writedowns, the note recommended more bond buying, details on the European Financial Stability Fund's (EFSF) funding and how it will support markets and credible fiscal policies that deliver long-term savings over reactionary, short-term cuts.
Private creditors should write off 75 percent to 80 percent of Greek debt to allow for permanent stability, the note said, with holders of Irish and Portuguese debt in line for similar cuts. Banks should be forced to take the losses as opposed to a voluntary program which is unlikely to be successful.
Global equities still look attractive due to solid earnings growth and dividend payouts exceeding bond yields in developed markets, the firm noted. But that may change if Europe succumbs to a deep or lengthy recession and highlights the need for policymakers to "set and implement credible, decisive and thoughtful rules."