As protesters continue to run riot in the streets, economists are warning that the whole of Europe and by extension, the rest of the world could face financial armageddon should Greece default on its debt, in the absence of a second bailout.
Financial experts are warning of a 'Lehman Moment' as the European markets are beginning to show signs of unraveling in the wake of the Greek crisis.
"The markets have moved from simply pricing in a high probability of a Greek debt default to looking at a scenario of it becoming disorderly and of contagion spreading to other economies like Portugal, like Ireland, and maybe Spain, Italy and Belgium." a former UK Treasury official told Bloomberg news.
Many European countries and banks currently hold billions in Greek debt, meaning that a Greek default will act like a virus throughout Europe.
According to the Bank for International Settlements, Spanish banks currently hold $600 million in Greek debt, Italian banks hold $2.6 billion, UK banks hold $3.2 billion, French banks hold $19.8 billion, German banks hold $26.3 billion and other Eurozone countries hold a combined total of around $15.7 billion in Greek debt.
US banks also hold $1.8 billion in Greek debt and Japanese banks hold $500 million in Greek debt.
The euro has declined by more than 2 percent against the already vastly devalued dollar within the past two days. Equities declined around the world, while corporate bond protection costs soared to their highest level since January. There is now an estimated 78 percent chance that Greece will not pay its debts.
Four of Greece's largest banks have been downgraded by Standard & Poor's, while Moody's Investors Service said it may downgrade BNP Paribas SA and two other big French banks owing to the amount of Greek debt they hold.
A worldwide market freeze on the scale of that seen in 2008 following the collapse of Lehman is looking increasingly likely. Such a scenario would send shockwaves through currencies, money markets, equities and derivatives globally.
The Greek Prime Minister, George Papandreou, is seeking a parliamentary vote on a 78 billion-euro ($110 billion) program of austerity cuts and asset sales. The EU and the IMF have announced that the program must be passed by the end of the month in order that the country can receive "funds disbursement".
Should such a motion not pass, "Armageddon scenarios come into play, which include default and potentially the whole contagion scenario plays out." Charles Diebel, head of market strategy at Lloyds Bank Corporate Markets in London, wrote in a note to clients yesterday.