|Legarde leads the cavalry to the rescue|
First, Greece cannot repay the crushing national debt it now has. This means the supranational lenders will have to take a huge haircut within a short time, by forgiving a large part of that debt.
Second, if a haircut is not on, as Chancellor Merkel has said (no haircut in the classic sense, were her words last week), then all the Greek debt needs to be extended for at least 30 years, and interest rates need to be lowered.
Third, the games played by the EU leaders and the strangling of the Greek banks by the grudging extension of credit but no increase in credit from the European Central Bank, have added substantial burdens to Greece. Greece is unlikely to be able to find private sector lenders, and might well need annual transfers of funds from the other Eurozone states to have a fighting chance to prime its economy and fight its way out of the austerity it now faces.
The main battleground of the past three weeks has been the fierce determination by the Greek government to force the Troika and the German chancellor to confront the need to address the huge debt load by removing repayments for decades, one way or the other, and to inject new funds into Greece to kickstart its economy.
What the Greek PM wanted was two things: a big haircut, and a mini-Marshall Plan for Greece, funded by the EU.
The German finance minister was front and centre in refusing to consider either of these two demands. It was only after the referendum results that the EU reluctantly agreed to talk about the debt load some time in the future, after Greece had met some tests imposed on it in the latest rescue package.
Now Legarde has tossed a spitting and hissing cat amongst the German pigeons.
This is what the IMF is now saying in this leaked report:
The IMF said there is no conceivable chance that Greece will be able to tap private capital markets in the foreseeable future, leaving the country entirely dependent on rescue funding.
It claimed that capital controls and the shutdown of the Greek banking system had entirely changed the picture for debt dynamics, an implicit criticism of both the Greek government and the eurozone authorities for letting the political dispute get out of hand.
The picture is now so bad the IMF might not help if the EU leaders try to ignore reality:
The International Monetary Fund has set off a political earthquake in Europe, warning that Greece may need a full moratorium on debt payments for 30 years and perhaps even long-term subsidies to claw its way out of depression.
"The dramatic deterioration in debt sustainability points to the need for debt relief on a scale that would need to go well beyond what has been under consideration to date,” said the IMF in a confidential report.Greek public debt will spiral to 200pc of GDP over the next two years, compared to 177pc in an earlier report on debt sustainability issued just two weeks ago.
The findings are explosive. The document amounts to a warning that the IMF will not take part in any EMU-led rescue package for Greece unless Germany and the EMU creditor powers finally agree to sweeping debt relief.
And some see the hand of President Obama in this shocking report:
The backdrop to this sudden shift in position is almost certainly political. It follows an intense push for debt relief over recent days by the US Treasury, the dominant voice on the IMF Board in Washington.