The European bailout fund—known in official parlance as the European Financial Stability Facility, or EFSF—should be used to guarantee the first hit of losses on vulnerable European government bonds, a financial commentator told CNBC Tuesday.
"If they can guarantee the first 20 percent of losses, and if that was enough to enable those countries to continue issuing bonds, then the firepower of the EFSF would have been multiplied five times," said Hugo Dixon, editor and chairman of Breakingviews.com.
The EFSF is a vehicle financed by euro zone members, created in May of last year, that's designed to provide financial assistance to euro zone states suffering economic difficulty. The German parliament is set to vote on expanding the powers of the 440 billion euro rescue fund of the EFSF on Thursday.
Dixon said using the EFSF in this way would ensure that no new amendments to the Maastricht Treaty—which lays out the criteria for adoption of the euro by newer member states—would be necessary.
"This would just need authorities of the national parliaments and this backing from the EFSF would hopefully be enough to reassure investors to buy the bonds on the market because the first losses would be taken by the EFSF," Dixon added.
However, he admitted that investors could still feel that the risk was too great to buy government bonds from countries considered weak or vulnerable to a sovereign debt crisis.
"If investors still didn't want to buy these bonds then you might need to call on the ECB to come in and top up with the remaining 80 percent but the hope would be that this could be done without ECB involvement," he said.
He said there is only a small chance of Greece leaving the euro zone but the chances of a Greek debt default are almost certain. However, he said, the two create very different scenarios.
"Sometimes people assume these two are one and the same thing but they are very different. Greece defaulting is virtually inevitable but I would say it only has a 20 percent chance of leaving the euro zone," he said.
He alleged that the Greek Prime Minister, George Papandreou, is weak and, though attempting to do his best, lacks the support of the Greek people and could do little to influence Greece's fate.
"Papandreou is a weak character, he's trying really hard to do the right thing but what he says doesn't amount to a row of beans," Dixon said.
Philip Shaw, chief economist, Investec, told CNBC that the Greek economy had fundamental, long-lasting problems and was uncompetitive.
"The economy is probably going to contract by around 5 to 5.5 percent this year and a 50 percent haircut or default does not come anywhere near to solving all the issues. Greece is probably going to default because it is fundamentally insolvent, but if you can kick this far enough into the long grass there is no contagion issue," Shaw said.