GREECE:THE GREEK sovereign debt burden risks spiralling out of control and it would be "appropriate" for private bondholders to share in any restructuring, the International Monetary Fund has warned.

The IMF’s intervention, in a staff report published yesterday, comes after euro zone finance ministers moved towards forcing private investors to accept a reduction in the value of their assets, a move regarded with great suspicion by the European Central Bank.

“It will be important for euro area member states to decide how they fundamentally wish to support Greece,” IMF staff said in a report which inspired last week’s decision by the fund’s executive board to release its latest tranche of rescue lending.

“In this context, comprehensive private sector involvement is appropriate given the scale of financing needs and the desirability of burden sharing.”

Poul Thomsen, the IMF mission chief for Greece, told reporters that Greece’s debt sustainability was on a “knife-edge”.

While a debt writedown was not absolutely necessary, discussions in Europe over the past two months had led authorities in that direction.

The report was published as Fitch, a rating agency, downgraded Greece’s sovereign debt deeper into junk territory to CCC, one notch above default.

In Spain, meanwhile, finance minister Elena Salgado has raised the possibility of yet more budget cuts next year to control the country’s deficit and maintain its reputation in international bond markets.

During the past few days Spain has been joined by Italy as a target for bond market investors. Italy is also engaged in a new austerity round.

Fitch said yesterday that Italy could cope with this week’s increase in bond yields provided it meets its deficit-reduction targets.

Italian politicians are rushing a €40 billion package of deficit-reduction measures through parliament in an effort to reassure investors. – (Copyright The Financial Times Limited 2011, Bloomberg)