Greece rescue vote plan hits shares
The FTSE 100 Index opened more than 2% lower after George Papandreou's unexpected move cast fresh doubts on last week's much-heralded proposals to protect Europe from collapsing into recession.
Michael Hewson, analyst at CMC Markets, said if Greece voted against the eurozone deal, the fallout could result in "a complete meltdown of the European banking system and throw Europe into turmoil".
However, the UK's economic recovery hopes were boosted when official figures revealed that the pace of growth accelerated faster than expected in the third quarter of 2011.
The FTSE was more than 120 points lower at 5422.2 while Germany's Dax was 4.3% down and the Cac-40 in France was more than 3% lower.
The dismal opening in Europe followed a weak session in Asia where fears over the viability of the three-pronged EU rescue deal and weak Chinese data troubled investors.
EU leaders last week agreed with banks on a 50% cut on Greek debt and to boost the eurozone bailout fund to one trillion euro (£870 billion), which follows an earlier decision to shore up banks' finances.
However, Greek leader Mr Papandreou threw a spanner in the works when he announced his debt-strapped country will hold a vote on whether to accept the deal next January. The decision came following large-scale protests in Greece against austerity measures demanded by the European Union but analysts have warned a "no vote" could have a serious knock-on effect.
The banking sector was worst hit by fresh concerns with Barclays falling more than 8%, Royal Bank of Scotland losing more than 7% and Lloyds banking Group dropping more than 4%. The latest twist to the debt crisis followed growing uncertainty over the aid package, which initially triggered a surge on world markets as traders took hope from the proposals.
© 2011 Press Association