Months of feuding with the International Monetary Fund has rattled markets and raised fears of a new debt crisis, with Athens resisting pressure to cut public services any more than has already been agreed with creditors.
The IMF has sat on the sidelines of the latest bailout program and says it cannot participate in a programme which could keep Greece in a never-ending cycle of indebtedness that could push national borrowing to 275% of economic output by 2060.
On Monday Ms Lagarde said a reduction in Greece's debt load could occur without worldwide lenders having to take write-downs of their loans - an issue of specific concern to European Union creditors.
German Finance Minister Wolfgang Schaeuble's vocal insistence on the fund's participation gave the IMF leverage when lobbying for its demands, said a separate European official involved in the discussions.
The Athens government faces debt repayments of 7.0 billion euros ($7.44 billion) this summer that it can not afford without defusing the feud that is holding up new loans from Greece's 86 billion euro bailout.
While Greece can stay afloat without any further disbursements of bailout tranches until July, euro area officials have indicated that the stalled review must be completed before the Netherlands, France and Germany enter the final stage of their electoral campaigns this year. "It is a mission that has dragged on for many years and we are holding on to it".
In its report, the Commission refers to risks of a deterioration in Greece's fiscal performance, saying that 2017 could prove worse that expected due to the measures already taken and the impact of the uncertainty over the delay in the completion of the second bailout review.
The fund has also made a call for substantial debt relief for Greece, which is a political non-starter in Germany, complicating matters even further.
The IMF insists Greek debt, which the Commission forecast on Monday would fall to 177.2 percent of GDP this year from 179.7 percent in 2016 and then decline again to 170.6 percent in 2018, is unsustainably high and that Greece must get debt relief.
An "epidemic" washing over other European countries may see the end of the EU, warns Yanis Varoufakis, Greece's former finance minister.
Moscovici, who is considered an ally of the Greek government, said that all sides should avoid any needless instability, calling Greece a potential "success story".