European stock market volatility peaked Monday as equities in the region sold off, while government bond yields in Europe's "periphery" climbed as the Greek government called a crisis cabinet meeting after debt talks with creditors collapsed once again over the weekend.
Europe's equivalent of the VIX, the VSTOXX hit a five-month high of 27.75 points earlier Monday ahead of the emergency meeting.
Greek borrowing costs also surged with 10-year government bond yields climbing to 12.25 percent, while two-year yields surged more than 3 percentage points to 29.3 percent.
Talks between Greece and its creditors over the weekend yet again failed to resolve the impasse over reforms, with European officials blaming Greece for failing to offer concessions in return for a final tranche of desperately-needed financial aid.
Greek Prime Minister Alexis Tsipras said he would wait until Greece's lenders faced "realism" regarding the ongoing bailout talks.
"One can only suspect political motives behind the fact that the institutions insist on further pension cuts, despite five years of pillaging via the memoranda. The Greek government has been negotiating with a specific plan and documented proposals. We will wait patiently till the institutions adhere to realism," Tsipras said in a statement after the meeting.
Bond yields in the "peripheral" stocks of Italy, Spain and Portugal – countries that were caught up in the market turmoil of the 2012 euro zone debt crisis -- were hit with contagion selling, with Italian 10-year yields at 2.4 percent, levels not seen since mid-November last year.
Portugal and Spain 10-year paper traded at 3.3 and 2.3 percent respectively. Meanwhile German bund yields were pushed down as investors rushed to the perceived "safe-haven".
Greek banks also under pressure on Monday as investors digested the news, with Pireaus Bank tumbling as much 15 percent, while Alpha Bank and Eurobank Ergasias both slipped around 12 percent. Italian and Spanish banking stocks also fell sharply.
"Although the deadline for the current bailout extension does not expire until the end of the month, this week's Eurogroup meeting on Thursday could well prove to be the last realistic chance of reaching a deal," said Adam Chester, head of economic research and market strategy at Lloyds Bank, commercial banking.
"Any agreement needs to be approved by the various euro area parliaments, including the German Bundestag. Since the German Bundestag closes for the summer recess on 3rd July, there may not be time to get the legislation passed if the negotiations spill into next week," he added.