Greece’s president met little enthusiasm from political leaders summoned to a final round of talks on Monday to avert a new election, reinforcing fears the country was firmly on the path to bankruptcy and an exit from the euro zone.
European shares slid and Spanish and Italian bond yields rose as the political deadlock threatened to reignite the euro zone debt crisis. Greek banking stocks tumbled 7%.
After Sunday's effort at cajoling party leaders into a coalition proved fruitless, President Karolos Papoulias summoned four party leaders for a fresh round of talks on Monday evening.
But the talks appeared doomed long before they began, as the young leader of the radical leftist SYRIZA party said he would not attend and another leftist leader refused to take part in any coalition unless SYRIZA was on board.
Papoulias must call a new election if he fails to engineer a compromise. Such a poll is expected to be held in mid-June.
With Greece set to run out of money as early as next month and no government in place to negotiate the next aid tranche, investors have begun betting that a long-speculated Greek default and euro exit will happen sooner rather than later.
European paymaster Germany appealed to Greeks to build a viable government, but acknowledged that the country was in a difficult situation.
The prospect of national bankruptcy and a return to the drachma appeared to be slowly sinking in among Greeks, who must now choose between the pain of spending cuts demanded in return for aid and an even more painful existence outside the euro.
"We have to stay in the euro. I've lived the poverty of the drachma and don't want to go back. Never! God help us," said Maria Kampitsi, 70-year old pensioner, who had to shut down her pharmacy two years ago due to the crisis.
“They must cooperate or we'll be destroyed, it will be chaos. For once, they must care about us and not their chair.”
Capturing the self-defeating nature of an election that has drawn the country towards bankruptcy, the Ta Nea daily ran a front page picture of a man shooting himself and blood splattered across the backdrop in the shape of Greece.
"SYRIZA has paved the way for new elections. And this time, whether we like or not, they will be more like a referendum. We will have set ourselves the question whether we prefer the euro or the drachma," centre-left daily Ethnos wrote.
SYRIZA, which polls suggest would come first if elections were held again, said it was willing to take part in one-to-one talks with the president or talks that included all parties except the far-right Golden Dawn party.
But it was unclear what difference that would make and the president's office said it was not changing its plans for Monday's meeting.