Threats of Default and 'Grexit' Loom as Greece Refuses to Surrender

As threats of a debt default, potential 'Greek exit,' and stock market crash loom, both sides appear to be digging in their heels after negotiations between Greece and European lenders collapsed on Sunday.

Greece's leftist leader, Prime Minister Alexis Tsipras, slammed his creditors for their "insistence" on austerity, which he described as a "pillaging" of Greece's imperiled economy.

"One can only suspect political motives behind the institutions' insistence that new cuts be made to pensions despite five years of pillaging," Tsipras said in a statement to the Ton Syntakton newspaper. He said that the Greek government "will await patiently until the institutions adhere to realism."

Then, addressing his critics as well as the anti-austerity mandate that brought the populist Syriza party to power in January, Tsipras continued:

Those who perceive our sincere wish for a solution and our attempts to bridge the differences as a sign of weakness, should consider the following: We are not simply shouldering a history laden with struggles. We are shouldering the dignity of our people, as well as the hopes of the people of Europe. We cannot ignore this responsibility. This is not a matter of ideological stubbornness. This is about democracy. We do not have the right to bury European democracy in the place where it was born.

Meanwhile, Reutersreports, the European Commission said it would only resume mediation efforts if Greece put forward new proposals for more cuts.

The "last ditch" talks fell apart in Brussels on Sunday after EU officials dismissed the Greek government's latest reform package as "incomplete."

"While some progress was made, the talks did not succeed as there remains a significant gap between the plans of the Greek authorities and the joint requirements of the [European] commission, European Central Bank and International Monetary Fund," read a European Commission statement. It added that talks would resume in Luxembourg on Thursday when European finance ministers are expected to gather.

The impact of the disagreement was clearly felt on the stock market Monday as rumors circulated that Greece would not be able to repay the $1.8 billion owed to the IMF by the month's end. According to Reuters, U.S. stocks saw a 10 percent drop, which has not occurred since May 2011.

Over the weekend, a confidential proposal put forth by the Syriza party's more radical wing was circulated, revealing plans "for an Icelandic-style default and a nationalization of the Greek banking system."

The Telegraph reports:

Syriza sources say measures being drafted include capital controls and the establishment of a sovereign central bank able to stand behind a new financial system. While some form of dual currency might be possible in theory, such a structure would be incompatible with euro membership and would imply a rapid return to the drachma.

"We are all horrified by the idea of surrender," one Syriza MP involved in the draft told the Telegraph, "we will not allow ourselves to be throttled to death by European monetary union."