Board Displays DAX Index
Board Displays DAX Index Reuters

European stocks plunged Monday as fears that Greece will leave the euro zone turned into a virtual consensus about the debt-choked nation's departure. The downdraft also hammered U.S. stocks, which opened sharply lower.

Equities plummeted after repeated attempts by Greek politicians to form a coalition government that will honor the commitment of the previous government to accept austerity as the price for financial rescue.

A departure by Greece from the monetary union could leave European banks exposed to massive losses on Greek sovereign debt and force the international financial community to scramble to save those banks and keep Europe's recession from worsening.

The Stoxx Europe 600 tumbled 2.1 percent to a four-month low. Britain's FTSE 100 was down 2.09 percent, Germany's DAX fell 2.15 percent and France's CAC 40 slid 2.59 percent.

Adding to the stress was a poor showing by Angela Merkel's party in a German state election. Merkel has led the drive to make austerity a cornerstone of rescuing countries in the southern periphery.

Bank stocks led the day's declines, with HSBC Holdings PLC, for example, falling nearly 2 percent.

With no new Greek government in sight, I think that we will see continued insecurity and volatility in financial markets this week, Alessandro Fezzi, senior market analyst at LGT Capital Management AG in Pfaeffikon, Switzerland, told Bloomberg News.

The impasse will lead us to new elections in June, which will prolong investors' insecurity as they worry about possible contagion risks, especially regarding Spain.