Markets hit by continuing eurozone debt crisis

The euro and stock markets across Europe have fallen, with the eurozone debt crisis showing no sign of abating.

Borrowing costs for heavily indebted governments also rose further, with Italy and Spain suffering.

Market worries focus on a possible debt restructuring by Greece that could hit Europe's banks and other governments.

Latest bad news included weak eurozone economic data, a local election defeat for Spain's government and a negative credit rating outlook for Italy.

European stock markets fell sharply in morning trading, with the FTSE 100, Dax and Cac 40 indices all down 1.6%-1.9%, following sharp falls in Asia earlier in the day.

Energy and mining stocks did particularly badly, as the oil price fell back towards recent lows on fears the global recovery may be slowed by debt problems in Europe and tighter monetary policy in China.

Sentiment was not helped by the latest purchasing managers index for the eurozone - a survey of business expansion plans - which indicated that growth in France and Germany slowed significantly this month.

Meanwhile, the euro dropped two cents against the dollar, to below $1.40, bringing its total fall since Friday to nearly four cents.

Against the Swiss franc - seen as a safe-haven from the debt crisis - the euro hit a new all-time low of 1.2324 francs.
'Enormous problem'

In an interview for German weekly der Spiegel, the Luxembourg prime minister and head of the eurogroup, Jean-Claude Juncker, reiterated his idea that Greece could be granted a "soft restructuring" if its government met demanding policy targets.Mr Juncker explained that the restructuring would involve a delay in repayments and a cut in interest payments, to be agreed with the country's lenders.

However, he said it would need to be done in a way that would not be deemed a default by the international rating agencies, which would cause an "enormous problem" for Europe's banks, who would then have to recognise billions of losses on their balance sheets.

He also confirmed that any restructuring - and any additional rescue loans - would only be forthcoming if Greece stepped up privatisations and painful austerity measures.

Meanwhile, Greece's cost of borrowing in bond markets has continued to rise steadily, as expectations of an eventual default rise.

The yield on its 10-year bonds rose another half a percentage point to 16.8% on Monday, up from 15.3% a week ago.
Hidden debts

However, other countries also saw their borrowing costs rise, as markets remain concerned that a Greek default could trigger a broader meltdown.Spain's 10-year borrowing cost increased to 5.6%, its highest level since January.

The Spanish minority Socialist government suffered its worst defeat on record at local elections held over the weekend.

Analysts say that with control of some heavily indebted regional governments changing hands, there are fears that hidden financial problems may be unearthed by the incoming administrations.

The result follows a week of protests by tens of thousands of mostly young people, expressing their anger over austerity measures and the country's high unemployment rate, including a youth unemployment rate of 45%.

Meanwhile, rating agency Standard & Poor's lowered its outlook on Italy's debts to negative, indicating future downgrades are more likely.

Italy's government is said to be planning to bring forwards 35bn-40bn euros (£30bn-£35bn; $49bn-$56bn) of austerity measures to this June in response.

The country's cost of borrowing rose slightly in financial markets following S&P's move, to 4.87% from 4.77%, before falling back again in morning trading.