The International Monetary Fund said Greece missed a $1.8 billion debt payment Tuesday, becoming the first developed country to default on a loan to the lending agency.
Eurozone finance chiefs refused to grant a last-minute extension of the bailout program Greece has relied on for five years, and the Greek government couldn't come up with money on its own to pay the IMF. The IMF said its executive board would consider a Greek request to extend the loan.
Greek Prime Minister Alexis Tsipras has called a referendum Sunday in which Greek voters can decide whether to approve a deal proposed by the country's creditors. A "No" vote would likely force Greece to stop using the euro currency.
With banks shut and Greeks limited to cash withdrawals of 60 euros ($67) per day, long lines formed once more at ATM machines. Capital controls began Monday and will last at least a week, an attempt to keep the banks from collapsing in the face of a nationwide bank run. Greeks flocked to get cash over the weekend after the prime minister called for a referendum on creditor demands in return for bailout loans.
European officials and Greek opposition parties have warned that a rejection of the creditor proposals in the referendum will lead Greece out of the eurozone and potentially out of the broader 28-country European Union. The government has responded by saying this is scaremongering, and that a "no" vote will mean the country is in a better negotiating position.
The crisis has roiled global markets as investors fret over the repercussions of a Greek debt default and its exit from the euro — developments that could derail a fragile global economic recovery, as well as raise questions over the long-term viability of the euro currency.
The Stoxx 50 index of leading shares was down 0.3 percent, having been down 0.8 percent earlier. Germany's DAX was trading flat after being down 0.6 percent. All indexes recorded big losses the previous day, with U.S. stocks logging their worst day of the year.
Greek Prime Minister Alexis Tsipras himself was defiant in a television interview late Monday, urging voters to reject creditors' demands. More than 13,000 people gathered in Athens to support him and denounce Greece's creditors, as they chanted: "Take the bailout and go!"
"We ask you to reject it with all the might of your soul, with the greatest margin possible," Tsipras said on state television. "The greater the participation and the rejection of this deal, the greater the possibility will be to restart the negotiations to set a course of logic and sustainability."
A protest by supporters of a "yes" vote is planned for Tuesday night.
The government insists that a "no" vote on Sunday will not mean an exit from the euro, with Tsipras saying in his Monday night interview that Europe would not dare kick Greece out of the joint currency.
Finance Minister Yanis Varoufakis went further, threatening court action if attempts were made to remove the country from the joint currency.
"The Greek government will make use of all our legal rights," Varoufakis told Britain's Telegraph newspaper.
"We are taking advice and will certainly consider an injunction at the European Court of Justice. The EU treaties make no provision for euro exit and we refuse to accept it. Our membership is not negotiable," he told the paper, in comments released by the ministry.
On the streets of Athens, Greeks began adjusting to the new reality of restricted cash. Pensioners have been hit particularly hard, as many do not have bank cards and so found themselves completely cut off from their money.
A day after worried elderly Greeks swarmed banks in the hope they would open, the finance ministry said Tuesday morning it would open about 1,000 bank branches across the country for three days this week to allow pensioners without bank cards to make withdrawals. But the limit for them would be set at 120 euros for the whole week, rather than the 60 euros per day allowed for those with bank cards.
Meanwhile, irate depositors called in to television stations to report that some ATMs had run out of 20 euro notes, leaving them dispensing 50 euros only.