(REUTERS) - European shares posted their biggest fall in three weeks on Monday, as investors worried the measures outlined at last week's EU summit to strengthen budget discipline would be of only limited value in resolving the Eurozone debt crisis.
The measures were quite positive, but the market was looking for a magic bullet, and that hasn't happened, said Erik Esselink, fund manager at Invesco Perpetual, which has five billion euros under management.
It's very close to year-end and we're not seeing inflows. A lot of the investment community are not too keen on taking on new risks.
The FTSEurofirst 300 index of top European shares fell 1.7 percent to a provisional close of 969.01 points, in thin trade, and as borrowing costs for Italy and Spain rose.
Banks and insurers were the biggest casualties, having had a strong run-up in the last two weeks on optimism the summit would offer a solution. The STOXX Europe 600 Banking Index fell 3.7 percent.
French President Nicolas Sarkozy said the legal basis of a new accord to enforce debt and deficit rules in the 17-nation euro area with quasi-automatic sanctions and intrusive powers to reject national budgets would be worked out before Christmas.
In the next fortnight, we will put together the legal content of our agreement. The aim is to have a treaty by March, Sarkozy told newspaper Le Monde in an interview.
An EU diplomat said the first draft of the new treaty would be ready by early next week. Sarkozy said the aim was to have it ratified by all member states except Britain by June.
You have to understand this is the birth of a different Europe -- the Europe of the Eurozone, in which the watchwords will be the convergence of economies, budget rules and fiscal policy. A Europe where we are going to work together on reforms enabling all our countries to be more competitive without renouncing our social model, the French leader said.
In the Le Monde interview, Sarkozy prepared French voters for a possible downgrade of the country's AAA credit rating but insisted he could cut the public deficit without cutting salaries and pensions.
(Reuters Staff Writers Marius Zaharia and Matthias Blamont contributed to this report.)