Bond holders of European sovereign debt ultimately are going to have to take a loss for the crisis to get resolved, Pimco CEO Mohamed El-Erian said.
The head of the world's largest bond fund said the notion of "burden sharing," in which the public will not absorb the total loss for the toxic debt in Greece and other countries, will make this situation different than the financial crisis three years ago.
"This time around there's going to be a lot more burden sharing," El-Erian said in a CNBC interview. "I don't think the market has quite understood that it's not simply a matter of recapitalization, but decisions are going to have to be made about burden sharing, just like they're being made today in Greece. This is what's going to be different than '08 and '09."
El-Erian did not specify the extent of the loss — often referred to as a "haircut" — that banks will have to take when Greece restructures its debt . But he said it's time for policymakers to get realistic about resolving the debt problem.
Coming up with a solution has been difficult due to political pressures.
Germany has resisted bailout plans for the region because it feels its citizens shouldn't have to pay for the mistakes of others, while Greeks have rioted in response to austerity measuresthat have been tied to payments from the European Financial Stability Facility.
"From day one, people knew that this program would not deliver outcomes," El-Erian said of the Greece austerity plan. "This was not about Greece. This was about keeping Greece somewhat stable in order to strengthen the firewall, to strengthen the other countries."
Amid the difficulties in resolving the debt crisis has come severe volatility in financial markets. The U.S. stock market staged a violent rally late Tuesday, attributed only to a report in the Financial Times that European officials were considering a plan to stabilize banks susceptible to sovereign debt issues.
"People were stunned yesterday that in 15 minutes the S&P (500) could move 4 percent, the D(Dow Jones Industrial Avereage) could move 400 points on what? A headline out of Europe that the EU ministers were discussing—they're just discussing—bank recapitalizing," El-Erian said. "The market and the global economy have lost their anchors."