IMF: Public sector may be needed in Greek restructuring

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' 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 today.

"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.

"The world economy is on a narrow path with little margin for maneuver," she said. "America's debt and deficit - the lack of a medium-term plan to reduce it - that is a real problem. The situation is comparable in Japan."

She urged fast-growing emerging countries with current account surpluses, such as China, to take steps to boost their internal demand.

Lagarde also 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.