(Bloomberg News) The probability of Greece defaulting or restructuring its debt has increased since the arrest of International Monetary Fund head Dominique Strauss-Kahn, Pacific Investment Management Co.'s Mohamed El-Erian said.

"Don't underestimate how important Dominique Strauss-Kahn was in coordinating action" among European nations, El-Erian, the chief executive officer of Pimco, said in a Bloomberg Television interview on "In the Loop" with Betty Liu. "It's the worst possible time to lose your general. You need the IMF to coordinate this global healing."

European finance ministers for the first time have raised the possibility of talks with bondholders over extending Greece's debt-repayment schedule, saying that last year's 110 billion-euro ($156 billion) rescue has failed to restore the country to financial health. Europe would consider "reprofiling" Greek bond maturities as part of a package including stepped-up sales of state assets and deeper spending cuts, Luxembourg Prime Minister Jean-Claude Juncker said late yesterday.

"He has been getting everybody to play from the same sheet of music," said El-Erian, a former deputy managing director of the IMF. "Without him it will be much more difficult to coordinate European governments."

Strauss-Kahn was ordered held without bail yesterday by a New York judge and sent to the city's Rikers Island jail complex after being charged with sexually assaulting and trying to rape a hotel housekeeper on May 14. Straus-Kahn, the managing director of the IMF, has denied the allegations.

Greece Bonds

European governments have thus far ruled out shifting some costs to private bondholders and have instead relied on taxpayer-funded bailouts to stamp out the region's sovereign debt crisis.

Greek two-year yields declined one basis point to 23.4% as of 10:35 a.m. in New York. Ten-year yields climbed two basis points to 15.3%.

The IMF should focus on qualifications of candidates instead of geographic locations if a successor to Strauss-Kahn is sought, El-Erian said. Leaders of the IMF have traditionally come out of Europe. At the same time, he downplayed speculation he was a possible candidate for the post.

"I am very happy in California," El-Erian said, referring to the Newport Beach headquarters of the world's biggest manager of bond funds. "I have one of the best jobs in the world."

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