Europe Stocks Close Down, Euro Pressured as Greek Talks Stumble

European officials dismissed the Greek government’s latest proposals as ‘vague and repetitive’

The Wall Street Journal

By JOSIE COX

Updated June 15, 2015 7:34 p.m. ET

Global markets were rocked after talks between Greece and its European creditors collapsed over the weekend, sparking fresh fears of an imminent default.

The Stoxx Europe 600 index fell 1.6%, led lower by a 4.7% slide by Greece’s Athex Composite index. In the U.S., the S&P 500 dropped 0.5%.

The declines came after European officials on Sunday dismissed the Greek government’s latest proposals, describing them as “vague and repetitive.” Last week, the International Monetary Fund pulled out of the Greek bailout talks, citing a lack of progress, which had made markets jittery.

“We have always argued that a Greek deal would only occur at one minute to midnight,” Rabobank rates strategists wrote in a note. “Yet it now looks like 23:58 and counting.”

Shares of Greek banks led the losses on Monday. Alpha Bank AE fell 9%, Eurobank Ergasias SA sank 6.9%, National Bank of Greece SA shed 5.7% and Piraeus Bank SA slid 12%. Their shares’ hefty drops mean they have now all declined between 30% and 62% since the start of the year.

Greek bonds also tumbled, sending the yield on the country’s two-year debt up to 28.6%, 3.6 percentage points higher on the day, according to Tradeweb. The yield on the country’s 10-year benchmark bond rose by almost one percentage point to 12.4%. Yields rise as bond prices fall, and an inverted yield curve, where shorter-dated bonds yield more than longer-dated ones, signals that investors see a heightened chance of default.

Concerns about Greece have hurt the euro, although late in New York it had edged up 0.2% on the day against the dollar to $1.1285. Several strategists said the euro would likely remain under pressure until a resolution is found.

“Creditors are getting tired with the negotiations,” said Eirini Tsekeridou, an analyst at Swiss private bank Julius Baer. Ian Williams, economist and strategist at brokerage Peel Hunt, said that hopes for a compromise are diminishing, while strategists at BNP Paribas wrote in a note that “the risk of unfavorable scenarios, such as a default, has undoubtedly risen.” Attention this week will be on Thursday’s Eurogroup meeting of eurozone finance ministers, ahead of a Brussels summit on June 25, and a Greek debt-repayment deadline on June 30.

Credit Suisse economists said Thursday’s meeting would likely be “one of the last chances to rubber stamp an agreement between Greece and its creditors.”

“With the Greek government still living in its own world, hopes for a solution are evaporating,” said Demetrios Efstathiou, a senior economist at Standard Bank. He added, however, that he still thinks an agreement will be reached, but only “at the very last minute” and “not a minute earlier.”

Back in debt markets, the yield on the 10-year German government bond inched down to 0.82% on Monday. Yields on Spanish and Italian 10-year debt, which some strategists say could be most affected by a Greek default, were higher at around 2.37% and 2.32%, respectively.

“From a market perspective, the concern is that if Greece was to default and/or exit, then it might encourage others to do the same,” said Gary Jenkins, a credit strategist at London-based asset manager LNG Capital. That, he said, “puts the entire eurozone project at risk of collapse.”

Tanguy Le Saout, head of European fixed income at Pioneer Investments, meanwhile, warned that markets were still being too “complacent” about the potential “knock-on effects of the problems in Greece.” He said on Monday that he had positioned for a deterioration in the performance of Spanish and Italian debt.

—Chiara Albanese contributed to this article.

Write to Josie Cox at josie.cox@wsj.com