It's appropriate for private bond holders to share in the cost of a new Greek rescue plan, but euro-zone member states must be prepared to support Greek banks if it results in Greece's sovereign debt being deemed in default, International Monetary Fund staff said in a report released Wednesday.
The staff report noted the debate over private-sector involvement has "been a major problem for securing confidence around the program."
It's important for euro member states to decide how they want to support Greece and then put in the needed mechanisms, the report said.
"In this context, comprehensive private-sector involvement is appropriate, given the scale of financing needs and the desirability of burden sharing," the report said, but warned it is "imperative for euro-area member states to put in place mechanisms to guarantee liquidity support to Greece's banking system" given the potential impact of a private-sector initiative on Greece's credit rating.
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