By Jonathan Davies

Greece looks set to default on its debts and leave the eurozone after negotiations over a new deal ended over the weekend.

The breakdown in negotiations means that Greece is highly unlikely to be able to pay €1.6 billion to the International Monetary Fund (IMF), due tomorrow (Tuesday).

Stock markets fell sharply in early trading in reaction to the news. The FTSE 100 fell by more than 2%, as did the Nikkei 225 in Japan. And the euro lost more than 2% of its value against the US dollar.

In addition, the European Central Bank (ECB) has stopped emergency funding, known as Emergency Liquidity Assistance (ELA) to Greek banks. The Greek government confirmed that the banks will remain closed for the rest of the week. That has resulted in a €60 limit on all withdrawals. In similar scenes to those seen as Northern Rock in the during near the start of the financial crisis, Greeks are queueing outside ATMs. But various reports suggest that only around 40% of cash machines actually have cash in them.

Despite optimism in the early parts of last week, negotiations ended without agreement on Saturday and Greek Prime Minister Alexis Tsipras called a surprise referendum on the issue, to be held on 5 July.

"[Rejection] of the Greek government's request for a short extension of the programme was an unprecedented act by European standards, questioning the right of a sovereign people to decide," Mr Tsipras on Sunday said in a televised address.

Greece has been locked in talks with its European creditors over a deal on the extension of its bailout for months. The European Commission, ECB and IMF wanted austerity reforms put in place by the Greek government to act as an insurance policy on the funds. But the government, led by the anti-austerity Sryiza party refused to meet certain demands.