Talks to form a coalition government in Greece failed
Evangelos Venizelos, leader of the socialist Pasok party, leaves the presidential palace after talks to form a coalition government failed Reuters

Global markets reacted sharply to fears of a possible euro exit of Greece as talks to form a coalition government in the country failed.

Major indices across the world along with the currency and commodity markets recorded a fall on fears of a euro exit for Greece.

European and US markets suffered huge losses on Monday, which were reflected in Asian markets on Tuesday.

All major Asian indices recorded a fall on fears of Greece's possible exit from the 17-member euro currency nations. Japan's Nikkei fell 1.1 per cent, Australia's S&P ASX 200 and Korea's Kospi both slipped 0.9 per cent in early trade.

The panic also affected the currency market. The euro fell 0.7 per cent late in New York to $1.2824, though it recovered slightly in morning Asian trading to $1.2833.

A second meeting of the Eurogroup, the group of euro finance ministers, is due to be convened in Brussels to discuss Greece's future in the eurozone.

The meeting of Greece's major political parties convened by Greek President Karolos Papoulias failed to bring any positive results, as the leftist parties were unwilling to join the coalition and agree to the austerity cuts proposed by the Eurogroup to facilitate the bailout plan.

Although the Greek president proposed another round of talks, failure to reach a deal will lead to fresh elections and a possible exit from the euro.

"Things are very difficult. I'm not optimistic," Reuters quoted Evangelos Venizelos, leader of the Socialist Pasok party, as saying.

The talks were attended by the right-wing New Democracy, Pasok and the moderate Democratic Left parties.

The left-wing Syriza bloc did not attend the meeting, as they did not approve of further cuts and the terms of the latest €130bn (£105bn) EU/IMF bailout.

What if Greece departs from Euro?

Exit of Greece from the 17-member euro currency area could affect bond yields and capital flows. The whole ideological framework on which the very existence of the common currency union rests would also be under threat if Greece was forced to go back to its own currency.

Greece's exit might trigger fear of withdrawal by other members in the group, though the country accounts for only 2 per cent of the eurozone's economic output.

Eurogroup members do not foresee any such eventuality but analysts are not so optimistic.

"I still believe that Greece can stay in the euro and find the way to make sure that it respects its commitments. It would be much worse for Greece and Greek citizens, especially for the less well-off Greek citizens, if Greece did leave the euro than for Europe as such. Europe also would suffer, but Greece would suffer more," Bloomberg quoted European Union Economic and Monetary Commissioner Olli Rehn as saying.

The scenario was also rejected as "nonsense," by the chairman of the eurozone group, Luxembourg Prime Minister Jean-Claude Juncker, according to a BBC report.

Analysts see grim prospects for an agreement at the second meeting, which might lead to fresh elections.

As a majority of the Greeks are opposed to austerity cuts, a Syriza-led government is a possibility, according to polls.

Considering Syriza's opposition to the bailout terms, analysts see Greece's exit from the euro as imminent.