A meeting on Monday was cut off short, with the eurozone issuing Greece an effective ultimatum, saying the country must accept a key condition by the end of the week or face having to meet its debt commitments on its own — a prospect many in financial markets think would leave Greece little option but to leave the euro.
Greek shares opened more than 4 per cent lower. Other markets fell, too, including Germany's DAX, which was down 0.9 per cent.
"Time is now quickly running out to reach a compromise agreement," said Lee Hardman, an analyst at Bank of Tokyo-Mitsubishi UFJ. "It is becoming more likely that Greece will exit its current bailout program at the end of the month."
The latest bout of jitters emerged after the eurozone told Greece it has to ask for an extension to its bailout program by Friday before further negotiations on the country's future financing and economic course can take place. Investors are worried that the two sides are poles apart, especially as Greece's new left-wing Syriza government made scrapping the bailout program a cornerstone of its election campaign.
"I hope that they will ask for an extension to the program and once they do that we can allow flexibility inside the program," said Jeroen Dijsselbloem, the top official in the eurozone as he arrived for a meeting in Brussels of European Union finance ministers. "They can put in their political priorities."
Without some sort of financing arrangements in place after the current bailout ends after Feb. 28, Greece would face trouble meeting its obligations, such as debt repayments, over the coming months. Bankruptcy and a potential exit from the euro would loom for Greece once again.
Greek Finance Minister Yanis Varoufakis played down the collapse of the talks and laid out his hope that a deal will be concluded in time.
"We know in Europe how to deliberate in such a way as to create a very good solution, an honourable solution out of initial disagreement," he said.
A little more than three weeks after Syriza won the Greek general election, its stance appears unclear to some members of the eurozone.
"What the Greek finance minister has said gives us a positive feeling, though I must say that (their) opinions are changing pretty much every day and that actually is our problem," Austrian Finance Minister Hans Joerg Schelling told Germany's Deutschlandfunk radio.
Geir Moulson in Berlin contributed to this report.
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