Investors have soured on the latest attempt to resolve the European debt crisis.
Stocks tumbled around the world Wednesday, the euro slid to an 11-month low and borrowing costs spiked for heavily indebted Italy. The markets' jitters reflect rising doubts about the deal European Union leaders reached at a summit last Friday in Brussels.
The agreement requires the 17 countries that use the euro and nine other EU countries to balance their budgets and gives the International Monetary Fund up to euro200 ($264 billion) to help countries with high debt loads.
But there's growing disappointment that the new EU treaty:
_ Doesn't reduce existing government debt levels;
_ Doesn't do much to promote the long-term growth that would shrink those burdens;
_ Doesn't provide enough money to reassure financial markets that Italy and Spain can keep paying their bills.
"Fiscal discipline is needed in the long term, but it doesn't address today's crisis," says Athanasios Vamvakidis, head European currency strategist at Merrill Lynch-Bank of America. "There isn't enough money to stop the run on sovereign bonds of Italy and Spain. Investors don't want to buy their debt."
It was also unclear how the agreement, which is being written into a treaty, would be enforced and whether some of the countries that signed on might end up dropping out because of resistance to budget cuts back home. Britain has rejected the deal.
"Markets like quick fixes and have no patience with the length of the political processes," says Gianni Toniolo, a professor of economics and history at Duke University.
European Central Bank President Mario Draghi praised the agreement made in Brussels. But so far he has rejected calls for the bank to make large-scale purchases of European bonds, something financial markets are hoping for and that would help put downward pressure on government borrowing costs.
The Dow Jones industrials fell 131 points, or 1.1 percent, to 11,823. The euro traded below $1.30 for the first time since January 12, hitting a low of $1.2973. Some of that is loss of confidence in the assets of the 17 euro nations, but it's also the result of two quarter-point interest rate cuts from the European Central Bank. The cuts lower the return on euro-denominated holdings and can induce investors to move money elsewhere.
European stock markets fell broadly. Germany's DAX dropped 1.7 percent; France's main stock index lost 3.3 percent.
Italy held its last bond auction of the year on Wednesday and it didn't go well. Investors demanded even more money to lend to the eurozone's third-largest economy. Italy paid 6.47 percent interest to borrow euro3 billion ($3.95 billion) for five years, up from 6.30 percent just a month ago.
The higher rates reflected investors' fears over the inadequacy of last week's agreement to keep eurozone governments from piling up more debt in the future. Italy has a staggering euro1.9 trillion ($2.5 trillion) in outstanding debt, and its economy is too large for Europe to bail out. Greece, Ireland and Portugal have been bailed out.
European officials are scheduled to meet Thursday to work out the details of the treaty negotiated in Brussels, according to one European official who spoke on condition of anonymity because the talks are confidential.
The new treaty aims to impose tighter rules on how much money eurozone governments can spend. EU leaders agreed to limit deficits to 0.5 percent of economic output in regular economic times and to better enforce penalties against countries whose deficits rise too high.
The treaty will not be signed until March, at the earliest.
Several knotty issues must be resolved, including how budget rules contained in the new treaty will be reconciled with those in the basic treaty of the European Union, which remains unchanged. Another detail to be sorted out is whether countries signing on to the new treaty can legally rely on EU institutions, such as the European Commission and the European Court of Justice, to enforce its rules.
Governments and national parliaments are also leery of transferring too much sovereignty to Brussels or their fellow euro members.
"The process of negotiating the final deal to suit all will only add to doubts about its relevance in the long run _ meanwhile the immediate crisis continues," said Elisabeth Afseth, an analyst at Evolution Securities.
Meanwhile, European banks are under mounting pressure. The German government announced Wednesday it was reactivating its financial sector rescue fund. And the European Banking Authority said last week that the continent's banks need to raise about euro115 billion ($149 billion) to protect lenders against market turmoil, including bad government debt.
German banks need to raise euro13.1 billion ($17 billion); the country's second-biggest bank, Commerzbank AG, has been told it needs to raise euro5.3 billion ($6.89 billion).
Last week's summit did come up with a commitment from EU governments to loan up to euro200 ($264 billion) to the International Monetary Fund, which could help out the eurozone. Yet not all countries have made firm commitments to do this, and some poorer countries in Eastern Europe that do not use the euro are not happy about being asked to help pay for richer countries' mistakes.
Czech Prime Minister Petr Necas said he is personally against contributing the roughly 90 billion koruna (euro3.5 billion; $4.6 billion) that is sought, although his country has not made a final decision. In Slovakia, which uses the euro, the leader of a center-right party in the government said he has an "overall negative" view of the plan.
Leaders did agree to start a new euro500 billion ($659 billion) euro backstop fund, the European Stability Mechanism, a year ahead of time in July. But there are doubts about whether it is enough to soothe markets.
Many economists say the European Central Bank will eventually have to step up its so-far limited purchases of government debt _ because only that will keep borrowing costs down.
ECB President Mario Draghi has said governments shouldn't count on central bank bailouts; instead he said they should cut deficits and take steps to improve growth to win back bond market confidence.
Until recently, the euro had been surprisingly resilient against the dollar, despite the pressures heaped upon it by the debt crisis. That is partly because interest rates in Europe have been so much higher than those in the U.S., where the Federal Reserve has kept its main interest rate near zero percent.
That interest rate differential has helped offset the concerns investors naturally felt as the European debt crisis raged and threatened to undermine Europe's banking system and the currency itself.
But the ECB has cut rates twice since early November, giving investors one less motive to buy euros. That is one reason the euro lost ground Wednesday.
Jacob Funk Kirkegaard, a research fellow at the Peterson Institute for International Economics, says the market's impatience likely will pay off _ by putting pressure on European leaders to find a lasting solution to the crisis. "You need a certain amount of market volatility because otherwise these decisions will never be made," he says.
AP Business Writers Paul Wiseman in Washington and Bernard Condon in New York contributed. Steinhauser contributed from Brussels