LONDON — Most of Europe's stock markets ended at least 1 percent lower Monday, with Italy's main exchange falling 3 percent, as fears over the solvency of Greece combined with concerns that Spain, or even Italy, may be dragged into the turmoil that has already seen three euro countries bailed out.
Stocks and the euro tanked on a toxic brew of credit rating downgrades, a heavy electoral defeat for Spain's governing party and disagreements among top European officials on how to deal with the crisis.
"It was a bad weekend for the eurozone and, in particular, for those politicians and financial authorities trying desperately to keep the euro project together," said Jeremy Batstone-Carr, director of private client research at Charles Stanley.
Investors watched aghast last week as top policymakers clashed over how to deal with Greece's mountain of debt.
While policymakers at the European Central Bank warned of the catastrophic effects of a Greek debt restructuring, officials in Brussels suggested a delay in bond repayments could help give Greece more time to regain market trust.
Amid the confusion, Fitch on Friday downgraded Greece further below junk status and on Monday cut Belgium's outlook, while Standard & Poor's lowered Italy's rating outlook over the weekend. Tensions were further heightened Sunday when Spain's governing Socialists took a battering at regional polls as voters protested against austerity at a time when one in five people is looking for work.
The epicenter of the market tensions, however, was in Greece, analysts said.
After repeated warnings that Greece is behind schedule in its austerity reforms, some investors worry that the country may not get its next bailout installment — which it needs to avoid default — from its partners in the eurozone and the International Monetary Fund.
Though Greece managed to get a $154 billion financial lifeline just over a year ago, the consensus in the markets is that it will have to get a second bailout in the next few weeks to avoid some sort of default of its debt.
The prevailing view in the markets is that Greece will get more aid, partly because not doing so may cause an even bigger crisis for the euro. Austrian National Bank governor Ewald Nowotny suggested in Vienna on Monday that the EU Commission and IMF could consider more financial support.
After Greece, the next big concern in the markets is that the contagion that spread from Athens to Dublin and on to Lisbon could soon hit Madrid. Spain's economy is the eurozone's fourth-biggest, so rescuing it could sink Europe's bailout fund, potentially threatening the euro's existence in its current form.
The regional elections over the weekend, which saw the Socialists take a drubbing, have reinforced market fears that the political resolve to drive through often-painful measures to deal with the country's debts will fade. Daily protests against both the Socialists and the opposition conservatives were spreading to cities across the country and expected to last for days.