Shares fell around the world on Wednesday and the European single currency hit a two-week low as popular opposition within the euro zone to austerity unnerved investors already worried about a weak global growth outlook.
The main focus was on Spain: protesters clashed with police on Tuesday as Madrid prepared to unveil its 2013 budget on Thursday; and the Catalonian government, which oversees the country's biggest regional economy, called a snap election which could jeopardise plans for economic reforms.
A general strike in Greece and signs of dissent among key euro zone officials over new policies to tackle the region's debt crisis were also combining to take the gloss off recent moves by the European Central bank to calm markets.
Once again, it shows that when the ball is back in the governments' court, I think there's all this room for disappointment, said Tobias Blattner, European economist for Daiwa Capital Markets.
I think we just see that the governments are not living up to expectations, are not implementing what they promised.
The renewed concerns over the euro zone's ability to tackle its financial crisis have sparked a sharp rise in volatility on equity markets, leading to the worst day since June for the S&P 500 index on Tuesday and subsequent falls across Asia.
As a result the MSCI world equity index was down 0.7 percent at 332.70 points and had retraced all the gains made after the U.S. Federal Reserve announced a new round of aggressive monetary easing last week.
