Europe's main stock markets tumbled on Monday by more than 1.0 percent in early deals as investors reacted to weekend news that Cyprus plans to tax bank depositors as part of a controversial bailout deal.
London's benchmark FTSE 100 index of top companies sank 1.03 percent to 6,423.31 points, Frankfurt's DAX 30 shed 1.22 percent to 7,944.39 points and in Paris the CAC 40 lost 1.31 percent to stand at 3,793.75.
Asian equities also fell heavily in earlier trade, as the plan by Cyprus to tax bank deposits raised fresh concerns the eurozone debt crisis could reignite.
"If European policymakers were looking for a way to undermine the public trust that underpins the foundation of any banking system they could not have done a better job," said CMC Markets analyst Michael Hewson.
As a condition for a desperately-needed 10-billion-euro ($13 billion) bailout for Cyprus, fellow eurozone countries and international creditors Saturday imposed a levy on all deposits in the island's banks.
Deposits of more than 100,000 euros will be hit with a 9.9 percent charge, and 6.75 percent for anything below that threshold. The proposal must still be passed by parliament.
"The dawn raid on the previously sacrosanct savings of depositors will draw unwanted attention to the struggling peripheral banks throughout the eurozone," added analyst Mike McCudden at online brokerage Insteractive Investor.
"The move has sent a warning shot across the region and threatens to undo much of the work done over the past year to restore investor confidence.
"With Cyprus being the fifth member state to request a bailout ... the move has sent out entirely the wrong message to investors as they now take the reins in guiding the eurozone out of the mire."
Cyprus is the fourth nation to fall victim to the eurozone debt crisis, which has already resulted in enormous EU/IMF bailout packages for Greece, Ireland and Portugal.
Back in June, meanwhile, Spain looked as if it too would need a rescue as the collapse of its banking system, largely down to a burst property bubble, forced the government into a corner.
Madrid however insisted that it was able to get by without a full rescue, seeking instead a credit line of 100 billion euros to help its banks.