Watch - european shares slump on italy stalemate

Italy's election stalemate dragged Europe's stock markets sharply lower as investors worried about how it may reignite the eurozone debt crisis.

That led to a big sell off of bank shares.

The fear is the banks will suffer further losses through debts not being repaid if the region's economy weakens as a result of debt problems in countries such as Italy and Spain.

Trader Oliver Roth in Frankfurt blamed Berlusconi and Beppe Grillo: "A lot of people had hoped yesterday that Berlusconi would be clearly defeated in Italy's elections. But in the end the result destroyed that hope. Italy in the end has decided to vote for two comedians and that doesn't bring any joy to the stock exchange, because we are in a very, very difficult situation now. And the debt crisis could clearly revive and be worse."

After Milan, Madrid was the next worst performer with Spanish foreign minister Jose Manuel Garcia-Margallo saying the Italian result is extremely worrying.

"Spain will also now come under pressure," said Syz Asset Management's chief economist Fabrizio Quirighetti, who added that European equity markets could potentially fall some five percent this week.

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