Euro zone countries and the IMF need to show they can deliver a rescue plan for Greece, including a debt buy back, in the coming days to avoid financial markets "spinning out of control," a bank lobby group said.

The Institute of International Finance (IIF), which is leading negotiations on behalf of banks and insurers with billions of euros of exposure to Greek bonds, made the warning in a draft paper delivered to European finance ministers, dated July 10 and seen by Reuters.

"It is essential that euro area member states and the IMF act in the coming days to avoid market developments spinning out of control and risk contagion accelerating," the paper said.

A programme to buy back Greek bonds is needed to significantly reduce the country's mountain of debt, provide a sustainable long-term platform and prevent it calling on taxpayer help again in the future, the paper said.

Greece could target the buyback of debt on a voluntary basis, through open market purchases, special tenders or negotiated deals with individual investors. It would take advantage of big discounts in secondary markets of over 50 percent on long-dated Greek paper.

The IIF said the options it outlined, if implemented on a voluntary basis, would not trigger a credit event as defined by ISDA, the group that has the final say on the issue.

The lobby group also warned the release of stress test results for 91 banks due on Friday "may exacerbate market concerns about potential losses on other euro area sovereign bonds".  -Reuters