Greek PM tears into lenders as euro zone prepares for 'Grexit'

Greek Prime Minister Alexis Tsipras gestures during a meeting with leader of the centre-left To Potami party Stavros Theodorakis (not pictured) in Maximos Mansion in Athen, June 16, 2015. [Photo/Agencies]

ATHENS/BERLIN - Greek Prime Minister Alexis Tsipras accused Greece's creditors on Tuesday of trying to "humiliate" Greeks with more cuts as he defied a growing drumbeat of warnings that Europe was preparing for his country to leave the euro.

The unrepentant address to lawmakers after the collapse of talks with European and IMF lenders at the weekend was the clearest sign yet that the leftist leader has no intention of making a last-minute U-turn and accepting austerity cuts needed to unlock frozen aid and avoid a debt default within two weeks.

Financial markets, for months indifferent to wrangling over releasing billions of euros of aid for Greece, reacted with mounting alarm.

European stock markets hit their lowest level since February and the risk premium on bonds of other vulnerable euro zone states leapt in one of the sharpest episodes of contagion since the height of Europe's debt crisis in 2012.

The White House warned that agreement was needed to avoid shaking financial markets further and Tsipras assured US Treasury Secretary Jack Lew that Athens aimed to bridge the differences with creditors.

But with senior German lawmakers now openly discussing the once-taboo prospect of a "Grexit" from the single currency area, his fiery words suggested confrontation rather than reconciliation.

"I'm certain future historians will recognise that little Greece, with its little power, is today fighting a battle beyond its capacity not just on its own behalf but on behalf of the people of Europe," he said in a televised speech to legislators in his Syriza party, drawing loud applause.

Tsipras charged that the lenders were politically motivated in demanding pension cuts and tax hikes that hurt the poor, and their aim was to "humiliate not only the Greek government - this would be the least important - but humiliate an entire people".

European Commission President Jean-Claude Juncker reacted angrily, accusing the Greek prime minister of misleading the public and insisting that he had made clear that he was personally against hiking taxes on power and pharmaceuticals. "And the prime minister knows that," he said.

The rhetoric from Athens left it unclear whether Tsipras was preparing to default and risk economic collapse as the price of standing firm, or betting - wrongly according to creditors - on a last-minute effort by Europe to save Greece.

German Chancellor Angela Merkel, who has held repeated phone calls with Tsipras in recent weeks to press him to agree on reforms with EU/IMF negotiators, struck a despondent note, saying it was unclear if a deal could be found when euro zone finance ministers meet on Thursday in Luxembourg.

"Unfortunately, there is little new to report," she told a news conference, repeating that Greece must meet its obligations. "I have always said I want to do everything possible to keep Greece in the euro zone. I remain dedicated to that."