Greece Bailout Negotiations Sink Markets Monday

An apparent breakdown in bailout negotiations between Greece and its creditors over the weekend moved the Greek government ever-closer to loan default, and the stalemate rippled through international markets Monday as investors are becoming increasingly antsy over the fate of the eurozone.

"If no compromise is found by the end of June, this would almost certainly result in the default of Greece, which would in turn heighten the risk of the [European Central Bank] ending its liquidity assistance to Greek banks and Greece leaving the eurozone," Jan Gerhard, a country risk analyst at data and analysis company IHS, wrote in a recent research note.

By 9:35 a.m. on Monday, all three major U.S. stock indexes (the Standard & Poor's 500, Dow Jones industrial average and Nasdaq) were down about 1 percent from their Friday closing values. European and Asian markets also stumbled Monday.

Greece has a payment of about $1.8 billion due to the International Monetary Fund by the end of the month, and earlier in June opted to package what was to be four individual payments into one lump sum. But the country and its creditors are having a hard time seeing eye to eye on conditions for the release of about $8 billion in bailout funds; scheduled negotiations on Sunday reportedly dissolved after less than an hour, with both sides blaming one another for the impasse.

"This is not an issue of ideological stubbornness. It's about democracy," Greek Prime Minister Alexis Tsipras wrote in newspaper Efimerida ton Syntakton, according to The Associated Press. "We will patiently wait for the institutions to display realism."

The billions in additional aid held by Greece's international creditors would allow the country to meet its immediate repayment deadlines, with enough left over to help stimulate its embattled economy.

But European officials have sought restrictions on the Greek government's spending habits as prerequisites for any kind of bailout deal. Greece, in turn, has been critical of its creditors' insistence on austerity measures and budget-restricting requirements that would raise taxes and effectively limit pensions and social assistance programs.

"It is a gross misrepresentation of facts to say that the institutions have called for cuts in individual pensions," Annika Breidthardt, a spokeswoman for the European Commission, told reporters, according to the AP. "Yes, the pension system is one of the most expensive parts of spending. It is also one of the most expensive pension systems in Europe. And therefore a reform of the pension system is part of the requirement."

Brad McMillan, chief investment officer for Commonwealth Financial Network, likened the Greek government to "a teenager with a credit card."

"The Greek crisis boils down to a conflict between one group wanting to spend money that's not there and another that wants to impose discipline -- fiscal irresponsibility versus fiscal rectitude," McMillan wrote in a research note earlier this month.

McMillan also has speculated that Greece's decision to delay its individual bailout payments opened the door for it to default on its loans and leave the eurozone without giving every last penny to its international creditors.

"Why give the IMF all the money and then default?" McMillan told U.S. News earlier this month. "You have a situation right now where the cost to Greece of continued austerity is considered to be unbearable ... And you have a very diffuse set of benefits."

Greece's government has insisted that defaulting is the last thing it intends to do, though a Greek official Monday said Tsipras might soon have to call for a poll or referendum if he is unable to make headway with the country's creditors, according to Reuters. That could mean the Greek people may soon be asked to vote on what they would accept in the way of austerity or whether they would like to stay in the eurozone.

"There is a scene of a provocation, impasse and rupture. The initiative is now with the prime minister," Alexis Mitropoulos, a deputy speaker of the Greek Parliament, told Greek Star TV on Monday. "Either a referendum or elections -- this is the prerogative of the prime minister."

Tsipras, however, reportedly told senior aides last week to "forget about elections or a referendum," according to the AP.

McMillan says the U.S. is relatively isolated from major economic fallout that would come with Greece remaining in or leaving the eurozone. But a Greek departure from the euro is likely to spook investors and could create problems for U.S. equity markets.

"In the short term, we're going to see volatility. We're going to see the markets bounce around," he says. "I would expect to see some kind of sharp downward adjustment if and when the announcement [of a default] were to be made."

In the long run, though, McMillan says a so-called Grexit might trim fat in the eurozone and foster more stable international markets.

"The U.S. is very well positioned to ride it out," he says. "Afterward, it wouldn't surprise me if the markets said, 'We're relieved. Thank God that's done with.'"

Andrew Soergel is an Economy Reporter at U.S. News. You can connect with him on LinkedIn, follow him on Twitter or email him at asoergel@usnews.com.