Prime Minister Tsipras argues that a “No” vote on the question of whether to accept Greece’s creditors’ latest offer would strengthen his hand in negotiations to secure a new bailout. Photograph by Milos Bicanski / Getty

Just when you thought that the Greece saga had run out of plot twists, another one emerged on Thursday—and it was an important one. A few days before a referendum that will probably decide the fate of Greece’s Syriza government, one of the country’s creditors, the International Monetary Fund, came out and acknowledged that the stricken country is unlikely to recover until a good portion of its huge debt load is wiped out.

Echoing the argument that Yanis Varoufakis, Greece’s controversial finance minister, has been making for months, the I.M.F. published an internal analysis that described Greece’s debt dynamics as “unsustainable.” At a minimum, the analysis said, the maturity dates of Greece’s loans, which total more than three hundred billion euros, “will need to be extended significantly.” And if Greece doesn’t push through all of the structural and fiscal reforms that the Fund believes are necessary, “haircuts on debt will become necessary.” (A “haircut” is the financial term for reducing the face value of outstanding debt. If you owned a $1,000 bond and it was subjected to a haircut of ten per cent, it would entitle you to collect just $900 when it became due.)

I should stress that these conclusions weren’t based on the assumption that Syriza, or any future Greek government, would fail to carry through the policy reforms that its creditors are calling for, which include a relaxation of labor laws and a cut in pensions. To the contrary, the I.M.F’s analysis assumes that Greece accepts and meets the terms of the latest offer from its creditors, which the Prime Minister, Alexis Tsipras, rejected last weekend. This deal would involve the Greek government running a primary budget surplus of one per cent of G.D.P. this year, two per cent in 2016, three per cent in 2017, and 3.5 per cent thereafter. Even if this were to happen, and the Greek economy were to expand at a rate of 1.5 per cent annually, a fifty-per-cent improvement on its historical trend, Greece’s debts are so large that “further concessions are necessary for debt sustainability,” the report says.

One option the report considers involves extending the terms of Greece’s loans from twenty years to forty years, and doubling, from ten to twenty years, the grace period during which it doesn’t have to make any principal repayments. This, in itself, would amount to a significant hit to creditors. But what if the best Greece can manage over the long haul is to run a primary surplus of 2.5 per cent (rather than the 3.5 per cent called for in the latest offer), which seems a bit more realistic—and the economy grows in line with the historical trend? Then, the report concludes, in addition to doubling the grace period for principal repayments and extending the maturities on Greece’s loans, the country’s creditors would have to write off more than fifty billion euros’ worth of debts.

To be sure, the I.M.F. report didn’t spare Varoufakis and his colleagues from criticism. Indeed, it said that if the Greek government had carried out all of the policies that the country’s creditors were demanding, “no further debt relief would have been needed.” Last year, the report notes, things were going pretty well. But in recent months there has been a “substantial weakening in the delivery of structural reforms,” which has undermined hopes for stronger economic growth, “leading to substantial new financing needs.”

That last bit is certainly true. Since the start of 2015, Greece’s economy has fallen back into recession, reducing tax revenues and increasing the budget deficit. The Syriza government, having dragged out the bailout negotiations for months and generated a great deal of uncertainty, bears a good deal of responsibility for this downturn. But to suggest that Syriza is to blame for Greece’s debt load being unsustainable is silly, and many people inside the I.M.F. know it.

As long ago as 2010, when Greece was first bailed out, many knowledgeable observers, including some members of the I.M.F.’s board of directors, worried that Greece would never be able to pay back all of its debts—its total debt burden is about a hundred and seventy five per cent of the country’s G.D.P.—and advocated imposing a haircut on its creditors. Rather than doing this, the European Union, the European Central Bank, and the I.M.F. loaned the Greek government money to pay its creditors, which were mostly European banks, at a hundred cents on the dollar. In the now-famous words of Karl Otto Pöhl, a former head of the Bundesbank, the bailout “was about protecting German banks, but especially the French banks, from debt write-offs.”

Even Angela Merkel, the German Chancellor, reportedly acknowledged several years ago that Greece’s debt burden was overwhelming. On Wednesday, WikiLeaks released notes written by the U.S. National Security Agency on a 2011 conversation between Merkel and a personal assistant, which was recorded by the N.S.A. At the time, Greece’s European partners were discussing a possible haircut for private investors who owned Greek bonds. (This proposal did become part of a second bailout, in 2012, but it didn’t apply to Greek debt held by foreign governments and government agencies.) “Merkel’s fear was that Athens would be unable to overcome its problems even with an additional haircut, since it would not be able to handle the remaining debt,” the leaked document said.

It’s pretty clear that many European leaders felt the same way as Merkel. But they were concerned that writing off some of Greece’s debts would set a precedent for other heavily indebted countries, such as Ireland, Italy, and Portugal. Rather than going down that route, they stuck to the fiction that Greece, if it embraced austerity and structural reform, would eventually be able to pay down all of its loans—a strategy widely known as “extend and pretend.” The Greek public, after five years of swallowing the E.U.’s medicine and seeing the unemployment rate rise above twenty-five per cent, said enough is enough and voted Syriza into power.

That’s all history, of course, and it’s far from clear what impact, if any, the I.M.F. analysis will have on Sunday’s referendum. On Friday, Tsipras seized upon the report, describing it as “a great vindication for the Greek government as it confirms the obvious — that Greek debt is not sustainable.” That is true.* But the report also warns that six months of arguing and brinksmanship has left the Greek economy in urgent need of more credit—more than fifty billion euros between now and 2018, of which about thirty-six billion euros will have to come from Greece’s European partners.

That, in turn, leaves Greek voters facing a dilemma. Tsipras argues that a “No” vote on the question of whether to accept the creditors’ latest offer would strengthen his hand in negotiations to secure a new bailout. Many European leaders have made it clear that they would like to see Tsipras gone, and they have suggested that a “No” vote would force Greece to leave the euro zone, something that most Greeks don’t want. Should the voters back a government that can’t say when the country’s banks will re-open? Or should they buckle under to E.U. diktat? It’s not an appealing choice.

We’ll have to wait a few days to see which way the referendum goes. But we now have some clarity on the larger picture. Greece isn’t going to cut, or reform, or grow its way to debt sustainability. Either it will default on virtually all of its loans and adopt a new currency, or it will need debt forgiveness of the sort that Germany enjoyed after the Second World War, when more than half of its loans were written off. That’s the reality.

_* This post has been updated to include Tsipras’s comments on Friday. _