Stock markets across Europe fall on debt fears

European stock markets fell heavily on Monday, weighed down by fears that the eurozone's debt crisis was spreading.

In Italy shares were down almost 4%, in France the Cac index fell 2.7%, Germany's Dax fell 2.3%, and London's FTSE 100 was down 1%.

Banks across Europe were hit hard, with Italy's Unicredit down 6.3%.

Eurozone finance ministers were holding talks on a new aid plan for Greece, but this was overshadowed by fears of contagion spreading to Italy and Spain.

The euro fell, while borrowing costs for Spain and Italy rose to a 12-year euro-era high.

"There are tensions across the eurozone, we must find a solution," Belgian minister Didier Reynders said to reporters on arrival at the finance ministers' meeting.

Ministers are discussing how, and by how much, banks and other financial institutions can contribute to a new rescue package for Greece.

Spanish Prime Minister Jose Luis Rodriguez Zapatero called for a "swift and precise clarification" of how a second bail-out for Greece might work.

German Chancellor Angela Merkel also urged speedy action on new aid for Greece, and added that Italy needs to send a "very important signal" by passing an austerity budget.

Italy's Finance Minister Giulio Tremonti has proposed 48bn euros ($67bn; £42bn) in budget cuts over three years and aims to cut the deficit to zero by 2014 from this year's 3.9% of gross domestic product.

However, financial markets were unsettled by remarks from Prime Minister Silvio Berlusconi, who indicated in a newspaper interview that the austerity plan might not have full cabinet support.

In a sign that investors are growing more risk averse, the yield on Italian 10-year bonds jumped to 5.6% from 5.3%. Meanwhile, yields on Spanish 10-year bonds rose to 5.9% from 5.7%.