Stock markets were hit hard and the euro skidded down to near 22-month lows against the dollar Wednesday as investors grew increasingly skeptical that European Union leaders will be able to cobble together a plan to kick-start the region's faltering economy and deal with its crippling debt.
Leaders of the 27 EU countries are to meet in Brussels later for a summit that will focus on Europe's economic woes and Greece's political crisis. An election in Greece on June 17 is widely considered to be a referendum on the country's membership of the euro. And that's caused big jitters in the markets over the past couple of weeks.
"The market remains focused on the uncertain European situation, with today's European leaders meeting doing little to ease market worries," said Nick Bennenbroek, an analyst at Wells Fargo Bank.
In the early part of the week, there had been some hope that Europe's leaders might make progress towards shoring up Europe's defenses against financial turmoil. Any enthusiasm appears to have vanished with Germany's continued refusal to back the idea of eurobonds _ debt jointly issued by all the memebers of the 17-country eurozone. Such bonds would aim to bring down borrowing rates for financially weak states by distributing the risk of their debt across the whole.
"Hopes for today's EU summit have been well and truly chucked out of the window, as the Germans once again state their firm opposition to eurozone bonds as a means of solving the crisis," said Chris Beauchamp, market analyst at IG Index.
In Europe, Britain's FTSE 100 was 2.53 percent lower at 5,266, while Germany's DAX lost 2.3 percent to 6,285. The CAC-40 in France was 2.6 percent lower at 3,003.
The euro was also under pressure, trading 0.5 percent lower at $1.2557 _ its lowest level since July 2010. Whereas a weak euro would help the region's exports, it would conversely make it more expensive for the eurozone to import anything.
Wall Street opened lower too, with the Dow Jones industrial average down 0.7 percent at 12,416 and the broader S&P 500 index 0.6 percent lower at 1,308.
Greece's politics will also remain the focus of investor attention. The main concern is that political parties that are against the terms of the country's bailout package might win the election. If Europe then cuts off its funding to Greece, the country may face a messy exit from the euro, raising concerns among investors that other countries might follow. Some analysts say a Greek exit would herald the beginning of the end of the euro and could slam the global economy.
Another big worry for investors is a slowdown in Chinese growth, compounded by a reluctance of Chinese companies to borrow because of uncertainty about the economy.
Those concerns dented sentiment earlier in Asia. Japan's Nikkei 225 index tumbled 2 percent to close at 8,556.60, while Hong Kong's Hang Seng fell 1.3 percent to 18,786.19 and South Korea's Kospi lost 1.1 percent at 1,808.62.
Oil prices were near seven-month lows as they tracked equities and amid hopes that the standoff between Iran and western powers over the country's nuclear program may be ending. Iran has agreed to allow the U.N. nuclear agency to restart an investigation into its nuclear program. Benchmark oil for July delivery down 50 cents at $91.35 a barrel in electronic trading on the New York Mercantile Exchange.
Pamela Sampson in Bangkok contributed to this report.