Eurozone governments could be forced to accept losses on their rescue loans to Greece after Monday's late-night deal to overhaul its bailout failed to agree how to reach new debt targets for the struggling country, according to documents seen by the Financial Times.
After three gatherings in two weeks, euro zone finance ministers agreed to release a long-delayed 34.4 billion euro ($44.4 billion) aid payment to Athens. But the series of measures agreed, which could relieve Greece of billions of euros in debt by the end of the decade, do not go far enough.
The measures to be implemented immediately as part of the deal will only lower Greece's debt levels to 126.6 per cent of economic output by 2020, not the 124 per cent announced by euro zone leaders, according to the documents and senior officials.
Instead, euro zone governments postponed further debt relief — amounting to 2.7 percentage points of gross domestic product — to a later date, when Greece begins taking in more money than it spends, not counting interest payments.
Officials said Greece could reach such a "primary budget surplus" by the end of 2014, pushing the additional debt relief to after next year's German elections. Because the deal already cuts interest on loans to just 50 basis points above interbank lending rates, any further cuts would almost certainly force losses on to euro zone creditors.
"That is sort of gaining hold, but it's not fully acknowledged because of the political cycle in Germany," one senior official involved in the discussions said of losses on bailout loans. "It is there, but it's there in a way [Angela] Merkel cannot be pinned down that you've committed to it."
Wolfgang Schaeuble, Germany's finance minister, on Tuesday acknowledged that he and his euro zone counterparts had agreed to further debt relief when Greece reaches a primary budget surplus.
But Mr. Schaeuble has been adamant that losses on bailout loans violate German law because it would not be possible to lend Greece more money once a haircut had been applied to earlier loans. Although people briefed on deliberations said Mr. Schaeuble was becoming isolated on the issue, he said all ministers agreed a writedown of official debt was "not the right solution to the problem."
"The deal buys a lot of time if Greece implements everything from now on, the economy starts recovering as projected in the program and the Europeans deliver on their promise to keep cutting the Greek debt," said Laurence Boone, economist at Bank of America Merrill Lynch. But she added there may be "too many 'ifs' to be reassured."
EU officials are exploring ways other than further rate cuts to hit the 2020 target, including reducing the amount Greece must spend to gain access to EU development funds, which could save Athens enough money to cut its debt levels another 2.6 percentage points of GDP.
The deal was seized on by the German opposition, who accused Mr Schäuble of attempting to hide the inevitability of losses on bailout loans. Frank-Walter Steinmeier, leader of the opposition Social Democrats in the Bundestag, said while his party would back the deal, Mr Schaeuble and the government was attempting to "wangle their way past the truth once again."
"The debt write-off has not been avoided, it has merely been postponed to a point in time after the federal elections," Mr. Steinmeier said in an interview with ZDF television.
Even if euro zone governments avoid losses to hit the 2020 target, the International Monetary Fund won a concession in Monday's deal that Greece's debt must be brought down even further by 2022, to "substantially lower" than 110 per cent of GDP.
According to the documents, under the Monday deal Greece's debt load would only come down to 115 per cent by 2022, meaning at least another 5.1 percentage points in cuts will have to be found.